Looking ahead to 2014

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So what might the lay of the U.S. economic landscape look like in 2014? This is not only a critical question for the nation as a whole, but for trucking in particular, as moderate to strong economic activity is what generates the freight this industry both moves and profits from.

On the positive side, gross domestic product (GDP) growth is moving in the right direction, increasing by 3.6% in the third quarter this year after a 2.5% gain in the second quarter, according to data tracked by the Bureau of Economic Analysis (BEA). On top of that, nonfarm payroll employment rose by 203,000 in November, noted the U.S. Bureau of Labor Statistics, dropping the unemployment rate down to 7% from 7.3%.

Freight volumes are also projected to increase by year’s end as well, with Old Dominion Freight Line (ODFL) noting recently that it expects a tonnage tons per day increase in the fourth quarter this year of 9.5% to 10%, as its tonnage per day increased at a rate of 8.5% in October followed by a 10.3% spike in November, as compared to the same months in 2012.

Yet the carrier also expects its revenue per hundredweight, excluding fuel surcharges, to slip a wee bit from its previous forecast for the fourth quarter, with the projected increase now only ranging between 1.5% and 2%, compared to previous expectations of 1.5% to 2.5%.

Then there’s the big Commodity Flow survey pulled together by the Census Bureau and the Bureau of Transportation Statistics, which continues to show that trucking remains the dominant mode for moving freight in the U.S. – meaning that this industry remains the single most important cog in the nation’s great supply chain machine.

“The Commodity Flow Survey showed once again that trucks move the vast, vast majority of freight in the United States,” noted Bob Costello, chief economist for the American Trucking Associations, in a statement.

Here are a few critical data points Costello highlighted from this survey:

  • In 2012, trucks moved 73.7% of all freight by value and 70% of the tonnage versus 3.3% of value and 15.8% of tonnage moved by rail;
  • The average length of haul for trucks is 212 miles;
  • Only 3% of freight tonnage moved on multiple modes – i.e. a train and a truck, or a barge and a truck;
  • Just 15.1% of all freight shipments were longer than 500 miles and only 9.7% traveled more than 750 miles.

“The length of haul data is crucial, particularly when talking about rail and truck competition,” Costello added. “While feasible under certain conditions, the potential for rail intermodal to gain a significant amount of truck market share is limited. Now more than ever, the two modes are more likely to complement each other than compete for business."

So, based on such near-term economic indices, how are things shaping up for 2014?

Let’s start with David Shulman (at right), senior economist with the UCLA Anderson Forecast, who recently said that as long as the federal government does no harm, growth in the U.S. economy will be sparked by strength in the housing and automobile sectors, combined with increased business spending and an end to the dramatic drop in federal purchases.

Taken together, he believes those factors are expected to put the economy on track to a 3% growth path by midyear 2014, putting the economy on track to add approximately 200,000 jobs per month and bring thus bringing the unemployment rate down to about 6% by the end of 2015.

Shulman also thinks policy interest rates will stay low throughout 2014, but with inflation rising to slightly above 2%, due largely to rising housing and health care costs, some of it coming from the implementation of the Affordable Care Act. He also expects that the zero interest rate policy of the Federal Reserve will come to an end in the spring of 2015.

[Just for fun, take a look at the global economic forecast from Allard Bruinshoofd, head of international research at Rabobank in the Netherlands. His outlook is in Dutch, of course, so follow along with the English subtitles!]

The Institute for Supply Management (ISM) also sees some positive trends ahead for the U.S. economy in 2014, with positive expectations expressed by 69% of the manufacturing executives surveyed by the group across 16 different industries. Purchasing and supply executives also expect a 4.4% net increase in overall revenues for 2014, compared to a 4.6% increase reported for 2013 over 2012 revenues.

"Manufacturing purchasing and supply executives expect to see continued growth in 2014. They are optimistic about their overall business prospects for the first half of 2014, and are even more optimistic about the second half of 2014," noted Bradley Holcomb, chairman of the ISM’s manufacturing business survey committee.

"Manufacturing experienced six consecutive months of growth from June through November 2013, while experiencing only one month of contraction during the entire first 11 months of 2013, which occurred in May 2013 when the PMI registered 49%,” he added. “Our forecast calls for a continuation of growth in 2014, building on the momentum from the second half of 2013. Respondents expect raw materials pricing pressures in 2014 to be low, similar to levels experienced in 2013, and expect their margins will improve."

In the manufacturing sector, Holcomb said survey respondents report operating at 80.3% of their normal capacity, up very slightly from 80.2% reported in April 2013. Purchasing and supply executives predict that capital expenditures will increase by 8% in 2014 over 2013, compared to a 12.3% increase reported for 2013 over 2012.

He added that respondents also forecast that they will increase inventories by 0.9% to support their planned level of sales in 2014, with manufacturers expecting to increase employment by 2.4% in 2014, even though labor and benefit costs are expected to increase by an average of 2.3%.

ISM’s poll also found that manufacturing purchasers are predicting growth in exports and imports in 2014. Respondents also expect the U.S. dollar to strengthen on average against the currencies of major trading partners.

Still, it’s not all peaches as cream for manufacturers, as ISM’s poll also found that the most challenging problems facing this industrial sector are: domestic sales growth (32%); international sales growth (18%); healthcare reform uncertainty (14.6%); ongoing government shutdown and debt ceiling concerns (13.5%); government regulations (9.6%); healthcare costs (8.4%); inflation (3.4%); and taxes (0.6%).

On the non-manufacturing side of the industrial ledger, ISM found that 58% of the non-manufacturing supply management executives it polled expect their 2014 revenues to be greater than in 2013. They also currently expect a 3.6% net increase in overall revenues for 2014 compared to a 4% increase reported for 2013 over 2012 revenues.

"Non-manufacturing supply managers’ reported operating at 86.3% of their normal capacity, higher than the 84.7% reported in April 2013. They are optimistic about continued growth in the first half of 2014 compared to the second half of 2013, and they have a higher level of optimism about the next 12 months than they had last December for 2013," noted ISM’s Anthony Nieves. "They forecast that their capacity to produce products and provide services will rise by 1.9% during 2014, and capital expenditures will increase by 4.6% from the 2013 levels. Non-manufacturers also predict their employment will increase by 2.1% during 2014."

The most challenging problems facing non-manufacturing businesses mirror those on the manufacturing side: domestic sales growth (31.8%); government regulations (18.9%); healthcare cost (14.9%); healthcare reform uncertainty (14.9%); ongoing government shutdown and debt ceiling concerns (8.1%); inflation (6.1%); international sales growth (4.1%); and taxes (1.4%).

One interesting factoid truckers should focus on: Non-manufacturing respondents to ISM’s poll indicate that technology and process improvement is the most frequently cited means for improving their supply chain operations in 2014, with other tactical approaches including: strategic cost and contract management; strategic sourcing; supplier relationship management; and professional development.

Even those surveys that discerned a more negative outlook overall are finding some positives, too. Take Grant Thornton LLP’s recent 2013 Fall CFO Survey for example: while 60% of the 1,000 CFOs polled by the firm believe the state of the U.S. economy will remain the same or worsen during the next six months, 43% said their company’s headcount would increase or significantly increase – a moderate three-percentage point increase from the spring.

In addition, more than two-thirds of CFOs (68%) expect the average cost of an employee’s salary to increase during the next 12 months, up from 65% in the spring.

All in all some pretty good stuff to contemplate as the finishing touches are made to 2014 plans.

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What's Trucks at Work?

Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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