NEWPORT, RI. Freight levels are up and industry analysts anticipate the market will remain healthy and strong for the rest of 2018. However, there is a lot of uncertainty in the domestic and global arena, according to FTR chairman and CEO Eric Starks, and that could make the outlook for 2019 murky.
During a business symposium at Volvo’s Ocean Race stopover in Newport, Starks stressed that even though the market and general economic health are looking great right now, there could be a potential for collapse depending on how some political things play out. He pointed out the potential for a trade war with China regarding aluminum and steel tariffs, as well as President Trump pulling the U.S. out of the Iran Deal, which could have an impact on crude and oil prices.
And then there’s uncertainty with the North American Free Trade Agreement (NAFTA).
“I am getting more and more concerned that NAFTA will get blown up and they will try to rebuild it,” Starks said. “I think the administration is closer to blowing up NAFTA, and that gives me heartburn. This is something that creates an uncertainty heading into 2019.”
In order to understand what the current market looks like and how it ends up impacting business relations, Starks broke it down in terms of freight, the impact of the electronic logging device (ELD) mandate, capacity, and what industry executives need to have on their radar moving forward.
Right now the industry is seeing freight levels that are up at 25% year over year, and it has not slowed yet. In addition, gross domestic product growth is at 2.5%.
“This is telling us that things continue to be relatively strong and relatively healthy,” Starks said. “We anticipate that we will stay in that growth range for the rest of 2018.”
But, the question is how sustainable is this current environment?
Payroll continues to show growth, and Starks said we need to see something close to 200,000 jobs on an ongoing basis to suggest that the economy is going to grow. “We can only sustain about 125,000-150,000 per month,” he noted. “How do we get economic growth without more and more people in the labor force?”
Starks added that there are industry-wide inventory problems that are creating repercussions through the transportation supply chain. He also pointed out diesel prices have spiked above the $3-per-gallon mark.
“U.S. truck freight levels are showing strong growth,” Starks explained. “A noticeable upward trend in freight levels is creating an environment where the market starts to tighten. Because things are so good right now, we’re trying to figure out if they are going to get better or are we going to see things soften?”
Are ELDs really impacting the marketplace or not? Around the time of the Dec. 18 implementation date, the industry saw a blip. After the April 1 full enforcement date, that number increased, but not substantially, Starks said.
“This actually had more than an impact in what we had previously seen,” he said. “This tells us there is additional capacity pulled out of the system because of this.”
Earlier this month, Noël Perry, principal at Transport Futures and chief economist at Truckstop.com, told Fleet Owner that before the April 1 full enforcement date, there was a lot of industry-wide speculation and fear as to whether states would overreact and take a lot of drivers out of service and cause a panic in the market. But that hasn’t happened, and according to Perry, there haven’t been changes in market dynamics since April 1.
Active truck capacity
“We are basically at 100% utilization,” Starks stressed. That means anyone who has a truck and a driver is moving freight, he explained. “This is unprecedented, and we do not see it easing back until the end of the year,” he added.
As capacity continues to tighten, the industry has seen a surge in order activity. The industry has also experienced a huge increase in the rates that carriers are charging shippers. "This is unprecedented," Starks said. "We have not seen this kind of growth in the freight market."
"This is something that allows you to make better decisions for 2019," he added.
What to watch
According to Starks, over the next five years, the industry should keep an eye on:
- Additive manufacturing (3D printing). Starks noted this is probably going to be the biggest change the industry will have to go through in over the next five years. It potentially changes how transportation works and what we ship, he added.
- Electric vehicles.
- Blockchain. “You’re going to have one of your customers say I can’t do business with you unless you implement a full blockchain environment,” Starks said. “You need to be willing and able to have that. It is coming – you have to be part of that equation.”
Over the next five to 10 years:
- Autonomous vehicles are continuing to move their way through the transportation system. Starks said it will end up getting to a point where automation can change how the industry utilizes drivers and manages productivity.