Your fate in '08

Dec. 1, 2007
As the calendar rolls toward 2008, carriers have a lot to be squeamish about. Freight volumes and profits have softened, at least for most public companies. Meanwhile, diesel prices soared to new highs in early November and are showing no signs of a significant retreat any time soon. Nevertheless, there are grounds for optimism. First, the bad news. The housing slump went from bad to horrible this

As the calendar rolls toward 2008, carriers have a lot to be squeamish about. Freight volumes and profits have softened, at least for most public companies. Meanwhile, diesel prices soared to new highs in early November and are showing no signs of a significant retreat any time soon. Nevertheless, there are grounds for optimism.

First, the bad news. The housing slump went from bad to horrible this fall. Home buyers went on holiday or were turned down for loans they might have qualified for six months earlier. And as adjustable-rate mortgages with ultra-low “teaser” rates come up for renewal, more and more borrowers appear likely to default, swelling the lists of houses for sale even more.

Thus, home sales probably will not revive before mid-summer at the earliest, and home building may not resume in earnest until the end of 2008 or even later. Household-goods movers and carriers that haul building materials, yard and garden supplies, home furnishings and consumer electronics will feel the pain even more than they did in 2007.

The housing meltdown has much broader effects on the economy and on trucking, unfortunately. When homebuilders cancel a new development, that cuts into demand for a wide variety of nonresidential construction projects and the materials hauled to build them. When house values stall, local property tax receipts suffer, forcing school districts and local governments to trim spending.

Yet the economy expanded between July and September at the fastest rate in a year and a half. Real GDP rose 3.9%, up from 3.8% in the second quarter, the Bureau of Economic Analysis reported on October 31. Although no economist expects that rate to be sustained, it now seems less likely that the housing crash or credit-market turmoil that hit last summer will tip the economy into recession.

What is propelling the expansion? Energy, for one. Record-high oil prices have encouraged development and construction of oil refineries, ethanol and biodiesel plants, wind farms and solar arrays. Demand for corn to stoke the ethanol distilleries, in turn, is contributing to high farm income and demand for farm machinery, fertilizer, and other truck-borne products.

Nonresidential construction has been another big contributor to GDP growth, in spite of the drag from housing-related cutbacks. In addition to energy projects, hospital and higher-education facilities have been sprouting all over, and power-plant and transmission-line construction is just beginning to rev up. All of these categories are relatively immune to either housing or financial-market woes and should stay vibrant in 2008. In contrast, three types of projects that were strong in 2007 are vulnerable to the tighter lending standards now showing up: retail, office and hotels.

The plunging dollar also has varied implications for trucking. The Canadian dollar recently approached highs against the greenback not seen since the Civil War. That makes Canadian products much less competitive and will cut southbound freight from Canada. By the same token, exports to Canada will grow next year. Similar changes will happen with traffic across the Pacific and Atlantic. Carriers distributing goods or hauling containers from abroad will have slimmer pickings, but trucks heading to ports will be fuller.

The bottom line: The economy should keep growing, with real GDP rising each quarter at a 2%-3% annual rate. Inflation, unemployment and interest rates will remain tame. But fuel costs will be brutal and freight patterns will differ substantially from 2007.

About the Author

Ken Simonson e-mail: [email protected]

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