“The economic outlook is much better today than it was a year ago,” said Jeff Chung, head of the logistics practice at California-based investment firm USBX Advisory Services.
“Spending by consumers is strong, especially on the retail and real estate side of the economy,” he told Fleet Owner. “However, there still has not been much of a recovery in business spending. Capital investment rates are not quite there yet.”
Chung noted that many trucking are posting strong revenues and earnings through the first half of the year. For example, truckload carrier J.B. Hunt said second-quarter revenue climbed 30% and its net income rose 40% compared to the same period last year.
LTL carriers are doing well, too, such as Old Dominion Freight Systems, which posted an 18.7% rise and revenue and 62.9% increase in net income through the first half of 2003.
Still, Chung said much of those profits are the result of cost-cutting efforts over the last two years, through freight levels are starting to pick up slowly now.
“The benefit now is that because carriers have cut costs down so much, any incremental increase in freight demand will boost their bottom line,” he said.
Things are also looking better since major uncertainties at the beginning of the year – such as the war in Iraq – have largely been resolved.
“Fuel prices can and always will be a wild card, but there is much more stability than last year,” said Chung. “The situation in Venezuela and the Middle East seems to have settled down and is getting back to normal.”
Though there is concern over growing federal deficits -- $455 billion this year, with government debt reaching $1.9 trillion over the next five years – Chung said that deficit spending should help the economy at least in the short term.
“Everything is looking pretty good now – there are no major ‘red flags’ ahead for the economy,” he said. “And if capital spending by businesses goes up and manufacturing activity increases, the economy should really improve and boost transportation business.”