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October 27, 2011

There was little good news

This year’s American Trucking Associations (ATA) Conference was a curious one. Held in mid-October at the Gaylord Texan at Dallas-Fort Worth airport, the event drew the usual managers and owners from the nation’s top trucking fleets. The main focus of the sessions was the economy with the “All Eyes on the Economy” panel discussion moderated by economist and Fox News Channel financial anchor Stuart Varney closing the General Session luncheon.

It was one of those affairs where you could feel everyone straining to hear whatever good news could be gleaned from ATA economist Bob Costello, and from John Felmy, chief economist for the American Petroleum Institute and Martin Regalia, chief economist for the U.S. Chamber of Commerce.

Unfortunately, there was little good news.

Regalia was first up, saying the recovery took a setback with reaction to the Japanese earthquake and tsunami, our own flooding in the Midwest and the troubles in North Africa all dragging on GDP growth to limit it to around 1.6 percent. That, he concluded, is a no-growth scenario.

Next up, Costello said trucking is doing Ok in parts and not so well elsewhere. Tankers are not having such a bad time, said Costello, but dry vans are flat. The ton-mile trend line is upward, but nowhere close to the pre-recession peaks: Truckload is still off 23 percent and less-than-truckload is off by 29 percent. Looking at the larger carriers compared to the small, the big boys are doing fairly well but smaller carriers are having a choppy ride.

Varny said in his opening comments that he liked to watch what trucking was doing because it’s the best indicator of the state of the economy. Costello added that there’s never been a recession that trucking didn’t predict through falling freight volumes, leading to the conclusion that we aren’t heading for another recession dip.

Felmy told the group that the current $86 a barrel price for oil was just a single point on the oil-price roller coaster. Driving prices is the fact that there’s a strong and growing demand for oil, with the industrial sector relatively strong and high demand from China. Further, Libya is tightening supply. Of course, what happens with the struggling European economy could also affect world demand, Felmy said.

Government gridlock is a major roadblock to growth, said Regalia. There are major areas that need action: Trade agreements must be signed and implemented as 95 percent of the available markets are outside the United States; the energy sector must get going again after being stalled by the lack of exploration and drilling permits; tourism needs to be encouraged not discouraged by homeland security alarms; there must be increased infrastructure spending and it should be directed at meaningful projects; and we need a better tax system that encourages growth.

“Will there be a new tax structure?” asked Varney. An emphatic “no” from Regalia left no doubt where he sees things going.

Costello said if the economy does finally take off; there are not enough trucks in the industry today. The industry is seeing some dividends now as capacity tightens with improvement in freight demand.

Despite high unemployment, trucking is starting to feel the pinch in driver supply. Right now demand and capacity are in balance, with freight down 20 percent from the peaks in the last decade. That’s good news for rates which, based of an index of 100 for 1980 fell continually until 2001. Rates have turned the corner and the index has started to rise, but it’s still off 36 percent from 1980.

With the room and whole country concerned about the debt, Varney turned to Regalia for his take. His answer was that there is a worldwide government debt crisis. In the U.S., the debt is 72 percent of GDP and heading in the wrong direction, he said. Curiously, though, he was not as pessimistic as expected although he did say that debt has to be addressed, probably by a hard look at entitlements: Medicare, Medicaid and Social Security. The alternative is Greece where debt is 160 percent of GDP or Italy at 120 percent.

The solution is to raise tax revenues through the additional revenues that come from GDP growth, said Regalia. It will take a change in the political dynamic but it’s not insurmountable.

Costello said the trucking industry is hampered by escalating costs in a generally flat demand cycle, so it’s imperative to watch costs. One area where carriers have saved is in buying new equipment but that has led to the oldest average fleet age on record.

Looking at maintenance costs, there’s an exponential rise as truck age gets above 550,000 miles so there are lots of trucks in the industry that are overdue for replacement. But replacement is all truck manufacturers are going to see on the order boards for the forseeable future.

Even so, it’s tough on the carriers as trucks are now more expensive. Mostly driven by emissions regulation, trucks have risen from $95,000 in 2006 to $125,000 in 2010.

Drivers, too, are going to get more expensive. At $400 a week, they’re actually on par with drivers in 1990, but that will change as demand for good drivers picks up.

Despite the demand in this industry, unemployment will remain stubbornly high, said Regalia. In America as a whole, unemployment is currently at 9.1 percent and with the no-growth scenario we’re looking at, there will be no significant decrease in unemployment. The economy needs to create 1.2 million jobs a year to absorb new entrants into the job market. It will need 1.4 million to make only a 1 percent dent in unemployment, so it’s likely the rate will still be at around 8.7 percent by November next year.


  1. Now a days the demand of trucker are increased and even they are given the highest pay but still don't understand that why people fails to go for this job.

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  2. Consider the maintenance costs, and there is rapidly increasing with age gets Truck above 550,000 miles, there are a lot of trucks in the industry, which is too late to replace them. But replacement of all truck manufacturers are going to see the order on the boards in the foreseeable future.

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