FTR Associates is forecasting 3% to 5% growth in truckloads for 2013, which is roughly twice what it has been in the past four quarters, according to Noel Perry, senior consultant for FTR Associates.
In today’s State of Freight webinar, Perry said growth will “slow down a bit in 2014,” not because the economy is getting worse but because the relationship between industrial production and GDP will slow a bit.
“We’ll also warn you that reality is much more variable,” he said. “What’s happened in recoveries since the beginning of 1990s in terms of individual quarters of growth (shows that). The minimum worst case we had during a recovery was 12% negative on an annualized basis; 14% of quarters were down negative 5%. The average fortunately is positive, but when it gets good during recoveries, the best we’ve had since the mid-1990s is a 17% quarter.
“So the likelihood is that things will be bit more rocky over the next few years. It’s important that you’re watching closely what’s happening in the economy, even if it’s on the good side. If it’s on the good side, things tend to take off for a while.”
He said that a significant outside force is new safety regulations from the Federal Motor Carrier Safety Administration (FMCSA).
“Every time they pass a regulation, it disqualifies some drivers or lowers productivity, which requires more drivers,” he said. “There’s potential for in the neighborhood of 800,000 additional drivers by 2016 if they do everything they say they will. 100,000 is a normal shortage for an economy in upturn. It’s going to jump up to 200,000. Add that to growth and it will be close to 300,000 by 2014 if the FMCSA does what will say it was going to do with respect to hours of service—unless the courts overrule it, and they are expected to hear arguments at the end of the month.
“It’s hard to forecast their behavior. We thought hours of service was going to happen in 2011. But FMCSA has put things off. For everything they put off, they added two more ideas they intend to execute. This thing is coming at us a little later than expected, but the final numbers are going to be much bigger. When the numbers get bigger, truckers have to hire more. They’re capable of hiring more, but tend to not do so immediately. They wait until rates come up, so there’s a lag. They’re very conservative about adding capacity. They’re not about to go out and risk money just because some bow-tied economist says it’s possible.”
Perry said they’re buying half the number of discretionary trucks as they did during the last recovery, so it’s unlikely truckers will try to get ahead of the curve.
“This time, the economy is not quite as strong,” he said. “It’s going to put us in the same ballpark as in 2004, and most of you remember how tight capacity was then.”
Perry said capacity will be affected by unconventional demand. Hurricane Sandy will be worth, on a year basis, probably as much as a 2% positive hit to trucking, much more so in the first and second quarters. He said all of the trucking activity for hydraulically fractured mines accounts for 160,000 trucks, and most of those are uncounted.
“We figure they actually add about 3% to the economy,” he said. “Those two (Sandy and fracking) are worth $33 billion in 2013.”
On pricing, he said: “We know truckers are extremely reluctant to forecast any price increase, so most fleets are saying, ‘We’re basically going to get what we got last year, and that was 2.5%.’ We look at next year knowing FMCSA will make things a lot tighter and suspecting that the economy will be stronger than people think, and we expect pricing will do what it did in 2010 and 2011. As you think about your budgets, keep this variability in mind. There is a natural tendency in this marketplace to underestimate the amount of pricing pressure there is in the industry.
“When the economy expands rapidly, it takes a long time for the marketplace to catch up from a pricing standpoint, and then it keeps going for a while, as happened in 2004. Prices after a lag of a quarter really began to accelerate. They didn’t get back to the 2% or 3% range until the middle of 2006. Surplus had been eliminated a year earlier, but prices were still running in the 7% to 10% range. That reminds us that that if we get the kind of shock many people are talking about in 2013, pricing effects will probably last through 2014.”
Larry Gross, senior consultant for FTR Associates, said there has been volatility in reported intermodal container numbers, with a “relatively weak performance in December and then a strong January.”
“There was a giant leap in January in international equipment,” he said. “A few one-shot factors were contributing. The most important was the threat of a port strike on the East Coast, which made volume move a bit earlier than it might otherwise be, and more volume came over the West Coast that would have been normally been routed to the East Coast. That accounts for at least some of that increase.”
According to AAR’s weekly intermodal loadings, “volume is running extremely strong compared to prior-year levels. We’re back to where we were in the middle of November, and that’s pretty unusual for February. At least some of that strength in February was due to the timing of when the Lunar New Year in the Far East occurred—in the second week of February, which means the volume was moving in advance of the shutdown. Rail volume was moving throughout February, and now we should be seeing a decline because it takes three weeks for containers to make their way across from China.”