With the U.S. economy so inextricably linked up to the world economy, including Canada’s, 2016 is shaping up as a risky year trucking and could usher in a global recession, according to Noel Perry of FTR Associates.
As Truck News reports:
“There’s a real chance of troubles in the global economy and we think there’s about a 15-20% chance those troubles could be severe enough in the year 2016 that they could lead to the beginning of substantial economic troubles for us sometime later in the year,” Perry warned.
So far through the last recovery, trucking’s growth outpaced that of general GDP by a greater margin than in the past, Perry said. If that changes, it could be bad news for trucking. Still, FTR is projecting freight growth of around 3% in 2016.
FTR continues to warn of the effect regulatory drag could have on capacity in 2017 and beyond. If capacity utilization crosses the 100% threshold – and it’s expected to in 2018 when the impact of productivity-choking regulations are felt – the trucking industry will struggle to find enough drivers to move freight.
“We’re already hiring a million people a year and if you ask us to hire another 100,000, we can’t keep up,” Perry said.
Currently, capacity utilization is at about 95%, resulting in a soft pricing environment, though Perry said some forward-thinking shippers are accepting rate increases and locking in capacity in advance of the coming capacity crunch.
When it comes to fuel prices, people should pay attention to Perry. He declared in 2014, the same year crude was worth more than $100 a barrel, that the “energy crisis is over” for a while.
“When I say a while, I mean as long as I’m going to live on this earth and I intend to live for another 30 years,” Perry said then.
He reiterated that stance this week, but did warn diesel prices should start rising this year and fleets better be prepared. Showing how diesel prices track in relation to crude, diesel prices in the US have actually fallen more than they should have versus crude. As this relationship normalizes, coupled with an expected increase in crude oil prices, diesel could be in for a considerable hike later in 2016, Perry warned.
When fuel prices rise suddenly, trucking bankruptcies occur, Perry said, because there’s a lag between when fleets are paying for fuel and when they can recover increases via the fuel surcharge.
“When (diesel) prices are falling like they have been over the past year, people get a nice infusion in cash. When prices rise, the opposite happens,” Perry reasoned. “This affects owner/operators and the big guys; it may affect the owner/operators a little bit more because they’re less able to manage those kinds of things.”
Asked if this is a good time to be entering the trucking industry or investing in new equipment, Perry said it depends on a carrier’s situation.
“This is not a good time to enter the marketplace, there are big exposures in terms of downturns in demand and also in fuel,” he said. “(However,) this is right now is a good time to young-up your fleet. Get rid of the last 10% of dogs you have that drivers don’t like and that have high maintenance costs. This is a great time to be buying equipment because it will make your cash flow position very strong if the market does weaken over the next two to three years.”