WASHINGTON DC. A surprisingly negative outlook both for the U.S. economy and for trucking in the short run emerged from the 22nd annual State of Logistics report sponsored by the Council of Supply Chain Management Professionals (CSCMP) and presented by Penske Logistics here yesterday.
Compiled by Rosalyn Wilson, a senior business analyst with the Delcan Corp., who has spent 25 years covering the transportation and logistics markets, the report casts doubt on the pace of the U.S. economic recovery and predicts significant challenges will face trucking in the near term.
“If 2010 had turned out to be more robust, or I was hearing more reports of tight capacity, I would not be second-guessing the analysis I did just a month ago for this report,” Wilson said during a news conference at the National Press Club.
“But now that I have seen a full five months of data for 2011 … it appears the [U.S.] economy is stalling,” she stressed. “Key indicators show that the economy is beginning to unravel in some sectors. The economy has been in a fragile state for close to four years now and the highly touted recovery in some sectors have not generated enough momentum to cascade into other less robust sectors.”
For example, Wilson noted that unemployment is on the rise again, reaching 9.1%, while hiring is falling off. Employment data released by the U.S. Bureau of Labor Statistics for May showed that just 54,000 jobs were added last month after 232,000 were added in April. And Wilson pointed out that the manufacturing sector – responsible for much of the growth in new jobs over the past year – cut 5,000 positions in May as well.
“Pervasive unemployment undercuts GDP [gross domestic product] growth by reducing consumer demand, which in turn makes it harder to create jobs,” she said. WIlson added that GDP got revised downward in the first quarter to 1.8%, well short of expectations, with second quarter GDP estimates now cut down to between 2.5% and 3%.
Wilson also noted that the Institute for Supply Management’s index of manufacturing activity fell to 53.5 in May from 60.4 in April, much lower than the 57.1 level that had been forecast, while consumer spending hit a six month low, leading inventories to increase.
“The current economic picture is not indicative of a strong recovery and, in fact, it appears the recovery is losing momentum,” she stated.
Though trucking rates and overall spending on freight transportation are up, Wilson pointed out that higher fuel surcharges and shipment volumes are largely responsible for most of those increases.
Indeed, her analysis shows that trucking – the largest component of the transportation sector – still remains the hardest-hit mode by the “Great Recession,” and is still struggling to cover costs, especially skyrocketing fuel costs.
Though diesel prices have moderated in recent weeks, dropping to a U.S. average of just $3.95 per gallon this week from over $4.06 per gallon at the start of May, they are up over $1.02 per gallon compared to this time last year, according to the Energy Information Administration.
Wilson noted that the cost for trucking overall increased 9.3% in 2010 over 2009, with intercity truck costs up 9.5% and the local delivery segment up 8.8%. However, freight volumes grew “fitfully” in 2010, increasing just 5.7% over 2009, “not even close to reversing the losses of the last several years,” she pointed out – adding that the cost for rail transport, by contrast, soared 21.8% in 2010, with revenue climbing from 2.84 to 3.33 cents per ton mile.
Even though some 16% of total trucking capacity has been permanently removed from the industry since 2006 as a result of the recession, Wilson said there still remains more available capacity than needed to meet demand in many segments, meaning trucking companies haven’t gained much ground in the rate department.
“As volumes have grown [this year], the balance has been shifting more in the favor of carriers, although a major portion of their increased revenues in the first quarter was from fuel surcharges,” she explained. “Until tight capacity builds and is more universal, shippers will continue to get away with holding tight to their current rates or searching for more favorable rates on the spot market.”
Going forward, Wilson expects trucking capacity to only become more limited, with a driver shortage becoming far more pronounced. She pointed to data compiled by ACT Research Co. that projects a trucking capacity shortfall of 75,000 trucks by the first quarter of 2012 will grow to 180,000 units by the end of 2012.
“Motor carriers are being set up for the ‘perfect storm,’” Wilson cautioned. “Capacity is still leaving the market, drivers are difficult to find and keep, the truck order backlog is growing, operating costs are rising while revenues are flat, and new regulations are on the way – especially revisions to hours of service (HOS) rules – that will reduce the productivity of the drivers and trucks they do have.”
By the end of 2011, she cautioned, “we will be looking at a quite different freight picture, unfortunately one that will be fraught with challenges for shippers and carriers alike.”
For a starkly different and far more positive take on the near-term outlook for trucking’s prospects, presented this week in reports released by two firms expert at tracking trucking and OEM trends, go to our top story of yesterday: “Trucking looking up over next year.”