Gaining traction

Dec. 1, 2001
Is trucking ready to shift out of reverse? There are signs of progress, but the answer depends heavily on what segment of the economy your company serves. For instance, auto haulers have been busy enough to wear the wheels off their rigs. New-vehicle sales surged by an unprecedented 26% in October. Even nonvehicle sales climbed a strong 1.8%. Both of these figures were exceptional. The nonvehicle

Is trucking ready to shift out of reverse? There are signs of progress, but the answer depends heavily on what segment of the economy your company serves. For instance, auto haulers have been busy enough to wear the wheels off their rigs. New-vehicle sales surged by an unprecedented 26% in October. Even nonvehicle sales climbed a strong 1.8%.

Both of these figures were exceptional. The nonvehicle sales were largely catching up with the 1.9% nosedive they took in September. Auto dealers were “borrowing” from later sales by tempting customers with 0% financing.

Meanwhile, inventories of other consumer goods remained at relatively low levels, suggesting that retailers, wholesalers and manufacturers will continue to restock, although retail sales may flatten out again. All of that activity should generate business for carriers serving consumers, even indirectly.

Both new and used home sales have held up better than in most economic downturns. The repeated rounds of Federal Reserve interest rate cuts, plus the near-absence of inflation, are likely to keep mortgage rates low, thus buoying home sales. That's good news for the many trucking firms that depend on home building, remodeling and furnishing, landscaping and household goods movement.

But nonresidential fixed investment — equipment and structures — is likely to pick up more slowly than consumption, consumption-related inventories, or housing. The double-digit drops in third-quarter profits reported by a wide range of companies mean little investment in factories or the equipment that fills them. Similarly, widespread layoffs mean shrunken demand for office space, furnishings, and related products, and for the carriers that haul the materials or deliver to the workers there.

Governments at all levels generate an extremely diverse group of truck traffic. The short-term outlook for this sector is also poor. All types of revenues are down, while governments must absorb unbudgeted outlays for overtime, security and unemployment-related costs. Unfortunately for carriers, the cost overruns don't translate into extra truck trips (although they should underwrite greater consumption by the workers receiving overtime pay and the unemployed receiving relief checks). Meanwhile, government purchases of goods, including public works, buildings, equipment, and supplies — all of which generate lots of truck traffic — are likely to be trimmed to close the budget gap. Of course, any cutback in highway and road spending also hurts trucking where it “lives.”

Looking at costs, all carriers will benefit from the ongoing plunge in fuel prices. A reviving world economy in 2002 will bring prices back up, but they should remain below the comparable month of 2001 for most of the year. Continuing overcapacity among truck and trailer makers will keep equipment prices low, while interest rates should make financing the vehicles easy on the wallets of buyers with good credit. The worst news on costs will be for insurance of all types, from employee health insurance to workers' compensation to liability.

The bottom line: For the most part, the economy has weathered the slowdown that began last summer and the added shocks of September 11, anthrax and a war. Because consumption accounts for about two-thirds of economic activity, the bounceback in consumption means good news for most trucking companies. But the revival of the economy will be very uneven, with business purchases coming along later and government purchases still in a downturn.

About the Author

Ken Simonson

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