United States manufacturing is benefitting from the strength of U.S. exports, which is very good for the transportation industry, according to Noel Perry, senior consultant for FTR Associates and principal of Transport Fundamentals.
“As manufacturing goes, so goes transportation,” Perry said. “One of our messages is, ‘Stop moaning. This is a pretty good time for transportation.’ This has been a good recovery for trucking and manufacturing. Manufacturing data is expected to move upwards.”
In today’s “The State of Freight” FTR webinar, he said that the average age of U.S. light vehicles appears to be about a year older than normal, and the market is moving up at an accelerated rate.
Perry said GDP growth is expected to be 2.3% this year, but there are some risks: Europe is a smaller issue that is here now, while China is a bigger issue for the future.
“Europe is in recession because of debt problems,” he said. “They prevented banking failure, but they haven’t figured out how to balance budgets. Twenty-two percent of our exports to go Europe, and total exports account for 10% of our economy. If that 22% were to drop by a third, that would be a drop of 0.6% in our economy. But the bigger deal is China. The government has lowered its growth expectations.”
He said 4% growth is forecast for U.S. truckloads in 2012, “more than enough to sustain prices and a nice recovery in equipment orders, and maybe even enough to encourage fleets to order.”
But two issues will continue to haunt the industry.
• Driver shortage.
“In an upturn like this one, we go from small hiring requirements to very large hiring requirements,” he said. “It is unlikely that anybody’s hiring capacity can expand fast enough to keep up, particularly when we know that fleets in the last downturn cut their hiring capacity.”
• Government regulations.
“The government, in its desire to improve safety, is adding regulations, and when it adds regulations, the short-term effect is to disqualify a certain number of drivers and make others less productive.”
He said truckload pricing is strong, given the condition of the economy, and price expectations are well above inflation. Fuel is a “really important exposure.”
“Me being an optimist, I think the Iranian issue will simmer down, so I’m optimistic about oil prices,” he said. “I think they will fall after this second-quarter peak.”
Larry Gross, senior consultant for FTR Associates and president of Gross Transportation Consulting, said railcar loads have gone negative in the last few weeks.
“That, in itself, might seem an alarming fact,” he said. “But when you peel the onion back, it has less to say about the general economy and more about railcars. The mild winter has allowed railroads to operate smoothly. Topline railcar loads are not indicative of the economy because specialized situations are going on, especially with coal shipments and, to a lesser extent, grain. Coal has been lagging of late. It’s a function of tactical and long-term issues. The tactical has been a drop in export coal and the mild winter, which has caused less coal consumption. The longer-term issue is substitution of coal with low-price natural gas. But loads are still up 8% year-over-year.”
He said that because coal is by far the largest commodity being handled by railroads, it is a “significant issue that railroads have to deal with.”
Gross said the intermodal side has been one of the success stories during the recovery, but the question is: Will that continue now that trucking appears to have found its stride?
IANA’s ETSO data—which defines international containers as a 20, 40, or 45 ISO container, and domestic as a 53-foot container or a trailer—was good in January, with international growing at 3% and domestic at 10% for an overall rate of 6%.
As of the fourth quarter of 2011, intermodal had an overall 15.5% market share and 8% domestic share of long-haul dry van freight (550 or more miles).
“There are very modest amounts of intermodal equipment being added this year,” he said. “There is a lot of surplus equipment out there. It’s conceivable that this could serve as a constraint on intermodal growth.”
On the trailer side, 53-footers are showing 5-6% year-over-year growth.
“Intermediate and short trailers, 45 and 48 feet, are dragging things down,” he said. “These were traditional intermodal workhorses, but no longer.”
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