It’s a fair question. While strong gross domestic product growth and solid jobs data can certainly be reassuring, are they reassuring enough to transportation businesses to overcome other potential weak spots in the overall economic picture? To answer that question, Bibby Financial Services surveyed transportation companies as part of the BFS Global Business Monitor.
In this survey, 64% of transportation companies have been in business for more than three years, while 88% engage in domestic trade and 25% import, export or both. Here’s what this highly influential transportation group is thinking:
Overall, transportation businesses are optimistic about the economy
Transportation companies surveyed in the United States are feeling positive about where the economy is — and where it’s headed —overall.
While there was some disagreement about business performance over the past year, with 35% saying sales have grown and 31% saying their sales have declined, there was an overwhelmingly positive mindset about their business projections over the next 12 months, with 44% expecting their sales to grow compared to only 15% that expect sales to decline.
But they disagree on the “why” behind the positivity
When it comes to specific policies that may be driving the current economic news, there is not a general consensus behind the relationship between the two. In the survey, 41% of respondents state that government policy is favorable or sometimes supports transportation businesses, while 48% indicated that the current policy is not favorable for the industry.
And when it comes to trade policy there were a wide range of responses. About 15% of respondents that believe their business is doing better than expected, while 32% say it’s worse than expected and 37% state that their business really has not really experienced a difference. Finally, some businesses reported that it is still too early to gauge the full effects of the current trade negotiation on the business climate.
They also see significant warning signs that can impact their business
All of this data is not simply based on theory. It can have a real-world impact on real businesses that affect the lives of employees, customers and consumers alike. There are legitimate concerns about increasing business inventories or the fact that some of the economic strength could be related to temporarily increased government spending.
One thing is for certain: Transportation companies currently are worried about rising costs and cash flow issues and when asked about their biggest cash flow concern, “getting paid on time” topped the list. Responding to that challenge is a challenge unto itself, as 80% of respondents feel that high interest-rates make access to funding difficult for their business and 37% of transportation companies indicated that the average payment timeframe for their invoices is 30 days or more.
With 21% of those surveyed indicating a bank loan is their primary source of funding (more than double the 10% average for all US companies surveyed), it’s legitimate to ask whether interest rate cuts by the federal reserve will be enough to ease cash flow and funding concerns.
To answer this question, it’s tempting to consider that federal interest rates hit record lows in 2008 and stayed low for years. The cuts this September (with possibly more cuts to come) reverse the rate increases seen over the past few years. It’s also important to keep in mind that bank rates are not necessarily tied directly to fed rates even though a decline in one typically drives a decline in the other.
As stated earlier, the economic picture for transportation becomes more complicated when considering the attempted trade rebalancing efforts that are currently underway. This can be seen as a benefit to some industries, while negatively impacting others. In the case of transportation, demand is increasing at ports, but this may lead to long-term losses in demand for the trucking industry. This is due to the possibility of manufacturers, distributors and retailers increasing their inventory on-hand to wait out any tariffs that might increase their costs later on.
While they are in the process of stocking up on inventory, transportation demand may increase, but then drop off significantly when the warehouses are full.
So, what’s the bottom line?
As we see from the survey data, small business interest rates that transportation companies are quoted can be quite high despite record low Fed rates. The continuing expansion of the trade war may mean more businesses negatively affected than the 1 in 3 currently feeling the effects. Transportation companies are positive about the economy and see the opportunity for growth in their businesses but have many real concerns about costs, demand, the trade war, and cash flow over the next year.