Freight Awaits Business Buying Big

LOUISVILLE, KY. – The U.S. economy is "nowhere near” slipping into recession. But because in the short term the economy is sending mixed signals, “freight demand will rise only modestly over the next several months."

That was a key takeaway from forecaster Eric Starks’ presentation at the Fleet Forum business conference, co-sponsored by HDT, held here on March 30, the day before the Mid-America Trucking Show opened.

Starks, president of FTR Transportation Intelligence, said the U.S. manufacturing sector is “by and large robust” despite industrial production running “in fits and starts” and that freight capacity is currently “relatively loose.”

However, despite a number of positive economic indicators – including employment, auto and light truck sales, stable fuel prices, and, to a lesser extent, housing activity – both retail sales and business activity remain flat.

“For 2016, GDP growth is forecast at 1.8 to 2.0% – that’s sluggish growth,” said Starks. "The economy is moving along slowly, with continued growth.”

Starks said the lack of capital spending by businesses is a concern. “Employment generates spending. Job growth of over 200,000 per month indicates [economic] growth and, on average, we are holding above the 200,000 level.

“But business is holding back,” he continued. “The level of core capital goods orders shows that business activity remains flat — I would like to see those orders pick up.”

Starks said a big part of what’s holding businesses back is excessive inventories, which he cited as “a structural problem, throughout the commercial-vehicle market and the economy at large.

“Inventory levels are now problematic,” he continued. “Too much inventory reduces demand for freight transportation. We need to see inventories go down before [business] orders can pick up.”

Still, Starks added, freight loading originations (which he noted, “unlike a ton-mile, can be physically seen”) are trending up. He said the loading originations forecast “indicates modest freight growth going forward in 2016 into 2017.”

Starks also cautioned that the drag on fleet operations from regulations, such as for electronic log devices and speed-limiters, is expected to “surge” this year and next year will affect utilization.

He said it remains to be seen if this will result from fewer “quality drivers” being available or a need to make up for a decline in operational utilization. “A lot of [regulatory] pressure on drivers will compel carriers to boost productivity,” Starks noted. “Some of that will require educating shippers. Some may have to ‘fire’ shippers who don’t get what is happening.”

Starks added that “by and large, I don’t see changes in regulations [now in the works] even if the administration changes [hands] after the election.”