Infrastructure and trade loom large for trucking in the year ahead as freight carriers adjust to a slower, but still positive, rate of economic growth in 2019, according to industry experts interviewed by Transport Topics.
Spending on infrastructure is expected to be a priority for Congress and President Donald Trump, while the outlook for global trade will hinge on whether the new United States, Canada and Mexico Agreement eventually is ratified and on the outcome of negotiations with China and the European Union on future trade deals.
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American Trucking Associations’ Chief Economist Bob Costello expects continued growth in demand for freight hauling, but at a slower pace than in 2018.
“We have hit the peak in the current freight cycle,” Costello said. “The economy is still growing, just not as fast as it has been in 2018.”
Costello projects a 2.5% increase in U.S. gross domestic product in 2019, which still qualifies as one of the better years in the current economic expansion cycle that is already one of the longest in history.
And while he sees little or no chance of a recession, Costello does expect freight activity in the first quarter to be weaker than normal because of changes in shipping patterns caused by the threat of tariffs on Chinese goods.
An agreement reached Dec. 1 between Trump and Chinese President Xi Jinping at the G-20 summit in Argentina putting a 90-day truce on more tariffs has given the two sides more time to negotiate, but arrived too late to stop a flood of imports for the holiday shopping season.
“For our industry, the damage was already done,” Costello said. “West Coast volume has been so strong because shippers were bringing in goods early.”
We're between seasons on RoadSigns but have created an intersession season as we christen 2019. In Episode 2, we ask: Is Trucking Charging Toward an Electric Reality? Could what’s happening at the ports of Southern California have consequences for the way the rest of the nation experiences an electric future? Listen to a snippet above from Volvo's Keith Brandis, and get the full program by going to RoadSigns.TTNews.com.
The U.S. trade deficit with China, in fact, surged 7.1% to a record $43.1 billion in October as importers brought in more consumer goods and U.S. exports of soybeans and other food products collapsed in the face of Chinese retaliatory tariffs.
Looking beyond the tariff wars, Costello said he is bullish about overall demand for freight hauling due to continued growth in domestic manufacturing and construction activity.
Construction, in particular, is poised for another year of growth, noted Ken Simonson, chief economist for the Associated General Contractors of America in Washington.
“Construction experienced moderate and unusually well-balanced growth in 2018,” he said, “and it looks as if that general pattern will continue in 2019.”
With unemployment levels remaining low and personal income on the rise, Simonson expects to see a slight pickup in residential construction and modest gains in publicly funded building activity, led by airports and school projects. That said, challenges confronting builders include finding adequate labor and uncertainty surrounding trade policies that could affect some construction projects, he said.
“Businesses that depend on imports or exports, including ports, transportation and logistics firms, may defer or cancel construction projects until there is a ‘cease-fire’ in the trade skirmishes,” he explained. “However, neither labor supply tightness nor tariffs are likely to lead to much acceleration of inflation at the consumer level, as many firms will try to absorb cost increases through productivity improvements.”
The outlook for manufacturing also is positive overall, despite the decision by General Motors to cease production at four factories in the United States and one in Canada in 2019.
Mike Jackson, executive director of strategy and research for the Original Equipment Suppliers Association, said U.S. production of cars and light trucks likely will stay in the range of 17 million units, with production continuing to shift from cars to light trucks.
“Consumer confidence is at an 18-year high,” Jackson noted. “It’s a remarkable thing.”
Jim Robey, a regional economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., is likewise optimistic despite threats posed by trade sanctions and rising interest rates.
“Fundamentals are pretty good,” Robey said. “Consumer confidence is incredibly high, the cost of capital is close to zero with inflation figured in and people are working.”
Robey said his biggest worry is that, given the long duration of the economic expansion, we may be “talking ourselves into the next recession.”
On the technology front, trucking and logistics service providers can expect continued progress in automation of supply chain processes, the commercial debut of a hydrogen- electric Class 8 truck and plenty of mergers and acquisitions.
Doug Waggoner, CEO of Echo Global Logistics, said 2019 will be “the year of AI” with process automation and machine learning helping to boost productivity of personnel providing freight-matching and logistics services.
“We currently have a [sales representative] who books 15 loads a day,” Waggoner told TT. “We can increase that to 75 loads a day.”
While technology is bringing visibility and self-service options for carriers and shippers, Waggoner added a note of caution about the reliance on software and automation to transact business.
“Many of the exceptions we track can’t be managed by an algorithm — only by a person,” he said. “It’s critical that automation not replace human work, but allow a more efficient use of time.”
The industry’s deal market also may speed up, as two-thirds of business executives surveyed by Dykema, a law firm specializing in mergers and acquisitions, said they expect an increase in deal-making in 2019, the highest level seen in the 14-year history of the survey.
“One of the most interesting findings is the respondents selected the automotive industry as the sector they expect to see the most M&A activity,” said Stephen Sayre, a co-leader of Dykema’s mergers and acquisitions practice group. “Deal-making in this sector could be vigorous as the automotive industry hits a wave of disruption with the rise of connected and driverless cars.”
In April, a potential disruptor for truck OEMs, Nikola Motor Co., is expected to hold the first public demonstration of its hydrogen-electric Class 8 truck. CEO Trevor Milton said the company will lay out plans for producing its Nikola Two and Nikola Tre vehicles beginning in 2021 and establishing more than 700 hydrogen fueling stations across the United States and Canada by 2028.
On the regulatory front, issues on the trucking industry’s agenda include potential changes to driver hours-of-service rules and entry level driver training. Plus, a new drug and alcohol clearinghouse is slated to take effect in January 2020.
In Congress, a bill that would lower the minimum age of 21 years for commercial truck drivers working in interstate commerce could emerge this year.
“We see signs of bipartisan support,” said Prasad Sharma, a government affairs attorney at Scopelitis, Garvin, Light, Hanson & Feary, in reference to legislation known as Developing Responsible Individuals for a Vibrant Economy Act, or the DRIVE-Safe Act. “We think it can be positioned as a jobs bill and as a partial solution to the driver shortage.”
Sharma is less optimistic on infrastructure, however, despite claims of support for action by leaders of both political parties.
“On the issue of funding there continues to be a fairly large divide,” he said. “There is a reluctance shared by members of both parties to increase fuel taxes, and that leaves it up to states and localities to come up with creative solutions.”
Carriers will be hard-pressed to match the financial gains made in 2018, but equipment suppliers are nonetheless preparing for another year of record-breaking truck and trailer sales.
Volvo Trucks said it expects North American production of Class 8 trucks to reach 310,000 units in 2019, up from 300,000 in 2018. Paccar Inc., which makes Kenworth and Peterbilt trucks, projects retail sales in the U.S. and Canada to be in the range of 280,000 and 310,000 units, one of the strongest markets in history.
Component supplier Wabco has provided guidance about its business that “was better than expectations overall,” according to investment analyst Michael Baudendistel of Stifel, Nicolaus & Co. “The outlook for North America of flat to plus 5% was consistent with the fairly bullish sentiment heard at recent industry conferences,” Baudendistel wrote in a note to investors. “We found the initial outlook for European production of minus 2% to plus 3% to have been encouraging given that truck production in Europe remains at a [historic] high level.”
Wabco supplies braking control systems and connected vehicle technology for commercial vehicles globally.
Don Ake, vice president of commercial vehicles for FTR, a trucking research firm, said he expects production of Class 8 trucks to set a record for a non-pre-buy year, provided suppliers can keep up with truck makers’ requirements.
“We are forecasting 350,000 North American Class 8 trucks to be built in 2019 and 310,000 U.S. heavy-duty trailers,” Ake said.
Michael DiCecco, executive managing director of asset finance for Huntington Bank, said demand for financing is strong and should remain so despite higher borrowing costs and rising equipment prices.
“It feels like 2005-2006 in a lot of ways in terms of demand for financing,” DiCecco said, referring to the last time in which demand for freight hauling outpaced the ability of trucking companies to keep up.
According to data published by the Equipment Leasing & Finance Foundation in October, investment in truck equipment increased 14.3% over the prior four quarters, which is well above the 10-year historical average of 9.5%.
For the next four quarters, the foundation projects growth to continue — but at a slower pace — with investment in trucks increasing 5% to 11%. For railroad equipment, investment is projected to rise 6% to 15% and for construction equipment 8% to 15%.
The biggest challenge for most trucking companies in 2019 will be securing enough drivers, said Brian Holland, CEO of Fleet Advantage, an independent equipment leasing firm based in Fort Lauderdale, Fla. The shortage is having real-world effects on consumers, he noted. “The lingering shortage of long- distance truck drivers is raising grocery prices,” Holland said.
Pervinder Johar, CEO of Blume Global, expects truck capacity constraints to be felt most directly at the nation’s ports.
“In 2019, many ocean carriers will be forced to sit longer waiting for trucks to pick up their cargo, which will prompt some to impose emergency intermodal fees or stop door delivery in response,” Johar told TT.
Natural disasters, economic flux and rising tariffs will remain a concern for global supply chain managers and will force corporate executives to reconsider current manufacturing strategies, Johar noted.
On the domestic front, Johar expects business models to evolve as well.
“New platforms will power increasingly connected truckers into the gig economy,” he predicted “As technology advances, we can expect business models [with] the potential to drastically disrupt the trucking industry in 2019.”
Staff Reporter Roger Gilroy contributed to this article.