FTR Conference 2016: Day 2

Daniel Meckstroth, vice president and chief economist for MAPI, examined the headwinds and tailwinds facing the U.S. economy. He predicted U.S. gross domestic product (GDP) growth will stay around 2% next year - a "new normal" due to falling birth rates and slower labor force growth - and thinks that if a global recession develops, it will start in China; a country that has not experienced a recession in 40-plus years.

Meckstroth stressed that there is more "downside" than "upside" risk to the U.S. economy, but added that strong domestic demand would provide a "buffer" for the country from the rest of the world. Such "domestic demand" in the form of consumer spending would be positive for freight transportation and would create a "good" effect on U.S.-based supply chains.

Noel Perry, an FTR partner and the firm's resident trucking expert, cautioned that only three past U.S. economic recoveries and expansions lasted longer that the current ongoing one, meaning there's a 30% to 40% likelihood of a recession within the next 3 years. "The next 5 years will be extremely uncertain and dynamic; it will not be business as usual in trucking," he stressed. "So you need to have a recession plan in your back pocket. We're not forecasting a recession; we're just worried about it."

Tim Wiseman (at left in photo) with the Scopelitis law firm provided a motor carrier regulatory update. He thinks the impending electronic data logging (ELD) mandate will survive an ongoing legal challenge filed by OOIDA, with a decision upholding the mandate likely to be issued at the earliest by January next year.

Wiseman reviewed a long list of regulations affecting the trucking industry. He noted that a particularly good one in his view - one that would create a Drug & Alcohol Clearinghouse database - has been languishing for two and half years now. "It is one of the better rules created by the FMCSA; it will help improve safety," he explained. "I wish they'd finally get around to issuing it."

A panel that included Wiseman, several trucking executives, and Jason Seidl (at far right) a noted Wall Street analyst, discussed the impact of the ELD mandate on the industry as well as current freight conditions. The fleets represented by the three trucking executives all currently used ELDs and suffered a 4% to 5.5% productivity loss on average after adopting them; a loss most haven't fully recovered from. All three also characterized freight volumes as "soft" or "flat" at the moment.

Eric Starks, FTR's president & CEO, said that North American Class 8 production should end 2016 at about 230,000 units and only increase to 231,000 units in 2017. Complicating the Class 8 outlook is the "flat" nature of freight volumes, he noted. "Flat is difficult; the trucking industry doesn't like flat," Starks explained. "It's used to growth or decline; events you can take action upon. With flat, you do nothing and you don't think positive thoughts, either. You are waiting for the other shoe to drop."

Avery Vise (far left at podium) president of consulting firm TransAdvise, guided a panel of trucking executives in a discussion concerning equipment trends. Several felt the EPA's estimate of Phase 2 GHG costs is being underrepresented. Dave Williams with Knight Transportation said the "governments' math" indicates Phase 2 GHG technology will add $12,000 to the base cost of a Class 8 tractor. "But if you add up the price of each piece of technology separately, it's about $20,000," he said. "That's why we think the ROI [return on investment] will not be as good as it's being claimed to be."

Don Ake (at left) FTR's trailer expert, is projecting total U.S. trailer production to hit 277,100 units this year, fall to 246,000 units in 2017, then climb back to 265,000 units in 2018. Yet Ake stressed he may dial down his 2017 projection by 10,000 to 236,000 units due to a deeper pullback in dry van orders.