Economic trends could mean significantly more opportunities are in store for the trucking and broader transportation industries, but there are a number of "headwinds" or difficulties in the mix. One of those is the truck driver shortage — an issue whose drum is often beaten — but it's time for some analysis after several carriers that recently boosted driver salaries still aren't seeing much improvement in a key aspect of hiring.
Those are some takeaways from a global and national markets outlook from John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp. He spoke at transportation operations technology provider TMW Systems' Transforum conference in Orlando, FL this week.
Certainly a common occurrence as a presidential election cycle is picking up steam, Larkin urged trucking and transportation companies to "take a step back" from dour economic predictions often heard. "There are a lot of very favorable things happening in the economy. Sometimes we get caught up in the negatives," he said.
Particularly in the last five years or so in the recovery from global economic setbacks during the Great Recession, emerging trends that are strong in trucking's corner include a rebounding housing market, an American-led "revolution" in energy and changes in manufacturing and distribution.
The good news
On the energy front, one of the positive domestic economic indicators is utilization of the Marcellus Formation asset, now that "we figured out how to extract oil and gas from shale buried deep beneath the surface," Larkin noted. "That in theory is showing up in the prices you pay for gas and diesel fuel, and it's making American industry more competitive," he added.
In that vein, Larkin said he'd recently visited Shell's extraction operation in Pennsylvania. "It's very exciting. It could generate a lot of freight and a lot of jobs, and it could make America number one in plastics, number one in chemicals," he told the audience. "We're very fortunate there."
Another factor on the favorable side is advancement in manufacturing automation and technology. There are human resources kinds of benefits to that, Larkin pointed out, but it also is helping foster a more local, remarkably agile supply chain that could strengthen American production and exports while reducing trade deficits — and bring with it expanded opportunities for trucking and freight transport.
"Robots don't really care whether they're in Dayton, OH, or Shenzhen, China, and the good news is they don't take a break and don't need to stop working for lunch," Larkin said. And with labor costs in China rising "at a very rapid rate," he noted, U.S. manufacturers and producers are considering near-shore or domestic production.
"If you can sufficiently automate, you can produce certain goods right here in the U.S. as cheaply as you can over in Asia," said Larkin. "Certainly, lower freight costs are one of the big advantages, but improved speed to market is another in a world where people want to order things in the morning and have them delivered in the afternoon."
Larkin expounded on changes that technology, logistics and consumer demand are driving in the supply chain. "Amazon.com has taken all of that to the next level by putting their fulfillment centers right in the middle of the urban core to facilitate not only same-day delivery, but in some cases, same-hour delivery," he said. "In both of the towns where I spend most of my time, Baltimore and Dallas, you can actually get a product delivered within an hour. Five years ago, people would've laughed if you said that."
Just before Larkin gave his analysis, TMW President David Wangler also spoke about the made-in-U.S.A. trends and potential opportunities for freight — with goods ranging from craft-brewed beers to affordable prosthetic limbs made by 3-D printing startup companies — but Larkin drilled down into some import-export specifics. In order to facilitate those shorter distribution distances and purchase-to-end-user delivery times measured in some cases not in days but hours or even minutes, "we're seeing production closer to the point of consumption, and that has big impact for the United States of America," he said.
"When you produce something in the U.S., [trucking and transportation companies] actually touch the freight, one way or the other, 8-10 times," Larkin explained. By comparison, "when [Asia-produced goods] come in through the port of Los Angeles or Long Beach, you may touch the freight only once or twice."
Yet another strong economic indicator for trucking is the improving housing market. Larkin said that new housing construction again is on an upward trajectory "after a very deep trough," but much of that is regaining ground lost during the Great Recession's most notable influence in 2008 and 2009. Still, new housing is going up in places like Dallas and Atlanta, which Larkin said includes a good deal of multi-family homes.
"It's very exciting to see that kind of construction, which we haven't seen much of for the last few years," he assessed. Larkin added that the housing industry "is also a big driver of freight and the economy. We have seen a 30% increase in housing starts since the recessionary trough; that is certainly good news."
However, in the complexity of global and national economic activity, these positive trends for freight are being blunted or held back by other factors.
While Americans may be saving more of their income at the gas pumps, it appears they're not necessarily rushing to spend those extra dollars on purchasing goods and instead are choosing to pocket them or pay down debt. "The economists haven't been able to figure that out," Larkin said.
Also, whereas domestic and near-shore production in places such as Mexico have seen increases recently, a stronger dollar has held back export growth. In the last few decades, Larkin explained, "the [U.S.] trade balance was heavily shifted towards imports; over the last five years or so, we saw a lot of balance beginning to appear there.
"But as the dollar appreciated relative to foreign currencies to the tune of about 20%, that has really put the export growth on hold here," he continued.
Capacity limits also can be a barrier to the closer-to-home manufacturing trend. "As we near-shore and in-source more manufacturing, there's going to be a multiplier effect on the amount of transportation required," Larkin told listeners, "and given that supply and demand is already tight, that could create some real issues out there in the supply chain."
In terms of the economy's slow but notable rebound since the Great Recession, the current growth and accompanying opportunities "seem to be confined to certain pockets," according to Larkin. "It's not universally strong across the United States." And while perked-up construction in the housing market is encouraging, again, much of that is regaining lost ground: "We're not quite back to where we probably need to be on the housing front, even with interest rates being the lowest they've ever been," he noted. Rates will likely increase going forward, Larkin pointed out, which could anchor housing growth somewhat.
On the issue of borrowing, Larkin discussed the national debt — which he said is now about $18 trillion — and the cost of entitlement programs like Medicare, Medicaid and Social Security. Though the rate of federal borrowing has slowed a bit, "the scary thing is there's another $70 trillion of debt that's not on the balance sheets — obligations of Medicare and those sorts of things.
"When you take the $18 trillion and the $70 trillion, you get about $90 trillion of national debt, and when you divide that by the about 300 million people in the United States, you end up with about $281,000 in debt and obligations per person, which is really frightening. You don't hear the politicians talking much about that," he said.
Driver shortage and other roadblocks
According to Larkin, the trucking industry's biggest problem is the shortage of available — or perhaps willing — commercial drivers. "Maybe it's the top three problems. It's very difficult to find them, very difficult to hold onto them," he said.
"Companies have tried everything under the sun to address this problem; there are bonuses related to safety, fuel efficiency, productivity, on-time delivery, longevity. There's recruiting bonuses, sign-on bonuses, referral bonuses — you name it, there are bonuses for it," Larkin continued. "The fleets are generally new, they're well-equipped, they're well-appointed, they're comfortable. Home time is increasingly scheduled and more frequent."
None of that has made driver shortfalls go away. Noting that the shortage of drivers is projected to be in the hundreds of thousands by 2022, Larkin said this remains a primary stumbling block for trucking companies and private fleets. "We still have a huge problem out there with labor," he said, offering a few possible explanations for this persistent, well-acknowledged issue.
First, truck drivers' wages were somewhat low as an industry average up through this year compared with similarly skilled professions, Larkin contended. "The average driver was making about $42,000 a year, while the average person engaged in what I'd call high-end blue-collar activity was making $47,000. So that's a $5,000 gap — more than 10% — and you could argue that with the lifestyle of a truck driver, you really should be paid a premium, not [purchased at] a discount, to make sure there are enough drivers."
But on that note, Larkin made the point that some carriers that increased salaries for drivers in 2015 have so far seen only so-so results. "Many companies this year have made big pay increases thinking 'Economics 101' would work," he noted. "What they found is that it hasn't really completely solved the problem. It may have reduced the turnover rate a little bit, but you don't see a line of prospective workers out the doors of these companies."
Over-regulation and rigid structure can contribute to a lackluster appeal of the driver position for new hires, Larkin pointed out, but another factor is an increasingly inadequate transportation infrastructure. "When you drive around Dallas, you don't think about Dallas as having a lot of potholes, but I assure you it does, as do many other cities," Larkin asserted.
"With the traffic congestion that exists in LA, in Atlanta, in Chicago, it's hard to even imagine the cost to the economy — the pain and agony the truck drivers have to go through in order to navigate all that congestion. It has big costs associated with it," he said.