Bumpy road ahead

Oct. 1, 2002
The abrupt closure of Consolidated Freightways reportedly threw more than 15,000 workers out of jobs. That's more than one-third the number of net jobs lost in the entire trucking and warehousing industry during last year's recession. Is it the harbinger of a second recession the dreaded double dip? From a peak of 1,861,000 in March of 2001, seasonally adjusted trucking and warehousing employment

The abrupt closure of Consolidated Freightways reportedly threw more than 15,000 workers out of jobs. That's more than one-third the number of net jobs lost in the entire trucking and warehousing industry during last year's recession. Is it the harbinger of a second recession — the dreaded “double dip”?

From a peak of 1,861,000 in March of 2001, seasonally adjusted trucking and warehousing employment fell almost steadily until March 2002, when it hit a low of 1,819,000 — a cumulative drop of 42,000. Then employment came back a bit before stalling again as the recovery lost steam.

Where will the road lead from here? There are a growing number of signs that the economy will remain in the slow lane for several more months. Manufacturing, which seemed in late spring as if were finally ready to add jobs and perhaps reopen stilled assembly lines, shed more employees in August than in any month since January. Retailers reported lackluster results in July, followed by worse figures for August, as even Wal-Mart and other discounters fell short of sales forecasts. Together, manufacturing, wholesaling and retailing account for an enormous amount of truck traffic directly; they also generate lots of spinoff activity, such as construction, that boosts (or shrinks) trucking still more.

State governments seem to be competing for who could issue the gloomiest revenue forecast, and the federal revenue swoon outdid all of them combined. These figures will push Congress, governors and legislatures to curb purchases of all sorts of goods that would have been carried largely in trucks. To make matters worse, road construction and repair are two categories of spending likely to be trimmed, meaning trucks will run on more congested and deteriorated highways.

Export growth, which had begun to recover along with the economies of major U.S. trading partners, appears threatened as Europe, Japan and Canada have yet to fully revive. Latin America economies are shakier yet. Even though most of the products that make up U.S. exports eventually travel by ship, their components or domestic journeys generate truck travel.

Several factors will make the road even more difficult for the firms that do find freight. On the plus side, wage pressure has been moderate, and CF's closing will add to the pool of experienced drivers that other companies can choose from. But there are other cost elements that have been, or soon will be, unfavorable. The run-up in insurance costs, including worker's comp, health care and liability, that began before September 2001 has only intensified over the past year and shows no signs of abating.

In contrast, carriers have paid less for diesel fuel every week since mid-September of last year than in the same week the year before. But that dividend is about to end unless diesel prices plunge unexpectedly. And now that new heavy-duty engine rules have taken effect, carriers that buy new trucks seem doomed to pay more for the equipment itself and possibly to run it.

The bottom line: Despite all the grim signs, consumers are still buying. They are buying homes and cars at near-record rates — two industries that produce huge numbers of specialized and general freight movements. Consumers have slowed but not abandoned their purchasing in stores. Meanwhile, machinery and products in a lot of factories and offices are gradually becoming obsolete or worn out. By early in 2003, these trends will bring more and more sectors back to life. As they end their hibernation, each will generate new truck traffic. These make it likely that the CF collapse, dramatic though it was, didn't mark the beginning of a second downturn but only the delayed reaction to the first one.

About the Author

Ken Simonson

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