Although trends are favorable overall, economist Eric Starks, CEO of FTR, told attendees at the Heavy Duty Trucking Exchange conference May 10 that markets are showing signs of volatility, adding a degree of uncertainty to economic conditions.
Starks, speaking on the state of trucking industry during the event in Scottsdale, Arizona, noted that a spike in fuel prices is now likely, given President Trump's decision to walk away from the nuclear non-proliferation treaty with Iran.
Adding to the whiff of uncertainty, Starks added that he believes President Trump will soon pull out of the North American Free Trade Agreement, as well. “That scares me to death,” Starks told the assembled fleet executives, “because NAFTA has a huge impact on your businesses.”
A final piece of uncertainty Starks pointed to was the growing federal deficit, although he noted that's a longer-term issue that won’t be felt right away. "This will likely increase further economic growth in the short term," Starks said. "But the outlook beyond 2019 is murky at the moment."
Those negative factors aside, Starks called out five specific positive trends that are currently creating a white-hot trucking market:
1. Businesses are now actively participating in the recovery.
“Manufacturing is growing,” Starks said. “We’re not back to the peak level we saw before the Great Recession, but business activity related to consumer goods is showing a healthy, growing trend as well. These are welcome signs businesses are now participating in this recovery. And we haven’t seen that until this point.”
2. Rising fuel prices are not a drag on the economy – yet.
“If you’ve been smart and have negotiated a fuel surcharge that will kick in as prices rise, you’re in good shape now,” Starks said. “We don’t like to see volatility in fuel prices. If they jump 10% in the next two weeks, fleets bear the brunt of that. You might get your money back from the shipper at some point, but if you’re cash poor that’s not an environment you want to be in. But measured increases are fine. And right now fuel is not on shippers’ radar screens. They’re more more worried about getting their products to market.”
3. Freight levels are growing at a healthy — almost strong — pace.
“We’re seeing clear upward trends in actual loads moved,” Starks said. “And demand is very strong in the weekly spot market.”
4. Retail sales are strong.
Although new home starts are flat, Starks noted that existing home sales are very strong at the moment, and new automobile sales are at very high levels.
“The positive news is that businesses are now willing to expand and invest in equipment,” Starks said. “The negative side of this is that demand for Class 8 trucks is very strong right now, with lead times for fleets waiting on new trucks as long as seven months.”
5. Freight rates are likely to rise.
With limited capacity and surging demand, Starks is confident rates will rise soon — although they will likely level off by this fall. “It is possible rates could rise by as much as 25% at the peak of this demand cycle,” Starks noted. “But I think they will level off and stabilize around 10% higher than they are currently."