Consumers call the shots

Dec. 1, 2000
Traffic growth reliant on buying habits The next few months are likely to show us just how strong consumer buying will remain in the face of rising interest rates and, perhaps, rising unemployment. Lest we forget, consumers are in control when it comes to establishing traffic growth rates for motor carriers.Although the economy has recently posted strong gains in industrial production, the trucking

Traffic growth reliant on buying habits The next few months are likely to show us just how strong consumer buying will remain in the face of rising interest rates and, perhaps, rising unemployment. Lest we forget, consumers are in control when it comes to establishing traffic growth rates for motor carriers.

Although the economy has recently posted strong gains in industrial production, the trucking industry has not really reaped its share of the benefits. It turns out that while consumer demand for goods and services has remained strong, the kinds of goods and services they're demanding has changed.

Consumers, including businesses as end-users of goods and services, have been spending a great deal of their disposable income on items that require less transportation capacity per dollar than in the past. The type of goods now being purchased tend to favor electronics, for example, which use less transportation services per dollar of value shipped than items in the agriculture or automotive sectors.

So even though consumers are still doing their part by purchasing to the hilt, their basket of goods is less traffic-intensive.

At the same time, people are buying more imported goods. Not only do exchange rates favor imports, but in some cases the primary source continues to move overseas. Consequently, the transportation services related to the production and intermediate distribution of these goods are taking place outside of the country, with domestic carriers used only for the last few legs of the distribution process. The equation goes something like this: As the proportion of imported goods increases, the overall demand for domestic transportation services, including trucks, decreases.

It's ironic, however, that more traffic would not necessarily lead to improved finances for carriers. For example, they have not yet been able to fully re-capture recent increases in wages, benefits, fuel and insurance costs. In addition, more traffic would mean more drivers, which would only exacerbate the current shortage.

The first few months of next year will be especially difficult for trucking. During this period, shippers and receivers will be coming off a strong buying season that is likely to show even lower profit margins. Even though the volume of retail sales continues to reach record levels, profits are not - thanks to the increase in discounts for all types of consumer goods, including the venerable SUV.

As a result, there will be less capital available for business investment and transportation expenses. In addition, demand for some of the goods that would normally be purchased during the first quarter of 2001 will be pulled forward into this year's holiday buying season (being a big-ticket item, automobiles come immediately to mind). This will further add to the softness in first-quarter demand for trucking services.

Finally, weather will also have an impact on consumer activity. If we have a winter that's relatively mild, consumers are more likely to be out shopping, which will, in turn, be good for trucking. But a harsh winter, whether in terms of temperature or snowfall, could lead to less consumer activity and thus reduced demand for trucking services, not to mention higher fuel prices.

So in the end, what matters isn't really who's in the White House so much as who's getting out of the house and into the stores.

About the Author

Martin Labbe

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