Fleet Management

Economy Improving, But Challenges Abound

September 14, 2015

By Jim Beach

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John Larkin, Stifel Nicolaus, discusses the economic outlook at TMW Systems' user conference Sept. 14 in Orlando. Photo by Jim Beach
John Larkin, Stifel Nicolaus, discusses the economic outlook at TMW Systems' user conference Sept. 14 in Orlando. Photo by Jim Beach

There are a number of positives for the U.S. economy and for trucking going forward, but a number of “headwinds” remain. That according to John Larkin, managing director of the investment firm Stifel, Nicolaus & Company.

Speaking at TMW Systems’ user conference in Orlando on Sept. 14, Larkin said that among the domestic “tailwinds” helping propel the economy and trucking were lower energy costs, manufacturing automation, a housing recovery, rising asset prices and an improved trade balance.

“Learning how to extract shale oil has helped reduce fuel costs,” he said, while there have been great strides in manufacturing automation, including the use of robots that don’t need lunch breaks or time off. Also, he noted that the pickup in the housing market, following the deep downturn during the recent recession “was exciting to see.” Housing activity is not universally good across the U.S., but some regions are seeing good growth, he said.

As for asset prices, he noted that the stock market has seen all-time highs in recent months and the trade imbalance has improved, although a strong dollar has put some export growth on hold.

International considerations that are helping the economy include a proliferation of technology, digitalization of commerce, low ocean freight rates, fewer mass epidemics in the developing world, declining global poverty (although that still is dire in some areas), and the fact that many people in other countries are adopting a Western life-style that creates export opportunities for American goods.

Now for the headwinds

On the other hand, there are still a number of headwinds out there, he said. “We need to reduce this list of headwinds to get back” to a solid growth rate.

These include low labor participation, a growing federal debt, expanding regulatory burden, a complex tax code and rising taxes, rising welfare costs, aging infrastructure and the fact that in the U.S., households are not being formed as rapidly as in the past. “Younger folks are putting off starting households,” he said. “They may settle down in their 30s, but it’s hard to drive the economy with slow population growth.”

Although the economy is growing, it is growing slowly, Larkin noted. Consumers are consuming, but not as much as before the recession. “People are still tightening their belts,” he said. And while housing starts are up 137% since the recession, that is still only about half as many houses as before the recession. “We are not back where we should be, even with interest rates as low as they have been and we are looking at increased borrowing costs going forward, which will not help,” he said.

Changing industry

As for trucking industry trends, Larkin said those include a shortage of human resources (drivers), a changing distribution model and de-globalization.

“The big problems with the trucking industry are drivers, drivers and drivers – it’s difficult to find them and difficult to hold on to them,” he said. He noted that trucking firms have tried all kinds of things to mitigate this problem, from bonuses to higher pay. Home time is more frequent, but still there is a huge problem out there with labor, with forecasts showing a shortage of 240,000 drivers by the 2020s.

He termed the changing distribution model the Amazon effect, with more and more people buying online, retailers are implementing omni-channel strategies.

He noted that the supply chain in the old days was a single channel – you got in your car, went to the store and made your purchases. Now it is evolving into an omni-channel approach where customers may go to a store, but they are just as likely to order online.

Fulfillment centers being also being located in urban areas so companies such as Amazon can offer same day or even same hour delivery.

Another trend he noted was de-globalization and on-shoring, as labor costs in China have increased. In many cases, it’s cheaper for companies to produce goods in Mexico, and in some areas here in the U.S., where manufacturers are producing more goods with less workers using more robotics.

Larking said there was no easy solution to the diver shortage, beyond the use of autonomous trucks. “But to get that approved will take 10, 15, 25 years with the pushback expected from safety groups.

On the energy side, he said the U.S. is driving an energy revolution with horizontal drilling and fracking. And while we will see e-commerce grow very rapidly, carriers need to be very nimble and will need to implement more technology to offset the labor shortage.


  1. 1. Ellen [ September 15, 2015 @ 05:30AM ]

    Two misspellings in this article. Really?


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