Commentary: Top industry issues for 2017

JLL Chief Industrial Economist Walter Kemmsies said many factors are likely to impact the freight movement industry, ranging from macro issues, such as possible trade policy and regulation changes, to specific issues that affect how goods are shipped.    The only safe prediction for 2017 is that many things are going to change. There are plenty of factors that are likely to impact the freight movement industry next year and beyond, ranging from macro issues, such as possible changes in trade policies and regulations, to specific issues that affect how goods are transported. Leaving aside the macro issues, which at this point are deep inside speculative territory due to political changes in some major economies, there remain plenty of trends in segments of the freight movement industry to focus on. Below is a non-comprehensive list of some of the more intriguing ones.
   With the large number of household Internet service subscriptions and growing number of consumers with smartphones, it is not surprising that retailers of goods and services are increasingly engaged in e-commerce. During the fourth quarter of 2015, Commerce Department data showed that a record 8.6 percent of non-automobile and gasoline sales were conducted online. The 8.6 percent record share looks set to be exceeded in 2016. Competition in e-commerce is increasingly driven by time to delivery. Large international multi-line sellers of consumer goods have been leading the retail shift to e-commerce and to shorter and shorter order-to-delivery times. How will middle-market retailers compete? Will they form cooperatives to achieve the scale economies in the logistics of same-day or less delivery?
   Distribution center real estate is at a premium in major port cities and inland markets. Vacancies are down, despite a significant increase in new construction. To some extent, this is related to increased transloading, which may at least be in part due to the geographic spread of e-commerce. Expansion in some of the areas where distribution centers have clustered may be constrained by labor availability and congestion. Expansion constraints in primary locations and the spread of e-commerce may drive demand in secondary locations.
   Excess capacity continues to impact the financial health of the ocean container carrier industry, despite a significant increase in containership scrapping, which by some accounts is close to a reduction of 500,000 TEUs. The ocean carrier industry has begun consolidating via mergers and bankruptcy. Some carriers are restructuring and selling non-core assets. As such efforts continue, and in the absence of negative economic and political trends, ocean carrier rates could improve sooner than expected.
   As part of the restructuring of ocean carrier services across various types of cargo, marine terminals have been and may continue to be sold as non-core assets, offering various acquisition opportunities for investors and for container terminal consolidation—especially in ports where larger vessels are being deployed. This could affect decisions cargo owners make about the routing of their goods.
   Gulf of Mexico ports are gearing up for direct services to Asia via both the Panama and Suez canals. There is significant trade-oriented economic activity growing in the Gulf of Mexico. Increased imports might allow for equipment repositioning to sup- port further export growth, particularly from the U.S. Gulf Coast. Increased U.S. exports would provide further support for ocean carriers.
   Prices of commodities, including energy, metals and agricultural goods, have declined in the last two years due to a combination of slower demand growth, increased production capacity, and a stronger U.S. dollar. This has dragged on investment spending globally and dampened the volume of world trade growth. With improving growth prospects in much of the global economy, demand growth could rise and the dollar could weaken as other currencies strengthen.
It seems that there is broad agreement that the United States needs to improve its transportation infrastructure. A pick up in infrastructure investment spending would boost economic growth in the near term and benefit both the industrial and bulk commodity industries.
   Infrastructure “repurposing,” such as converting permitted river and marine terminals for use in handling different cargoes as is the case currently atTradePointAtlantic in Baltimore, has increased in recent years. This infrastructure being repurposed was previously developed when the U.S. economy had different needs. As the country’s economy changes, infrastructure has to be adapted to serve the needs of the 21st century national economy. These developments could affect the competitive landscape in the freight movement industry.
   Dry and breakbulk shipping seems to be in worse shape than the container carrier industry. Improving commodity demand due to an improving global economy and infrastructure investment could augur the beginning of its recovery. Dry and breakbulk terminals would also benefit.
   It is well known that the advent of the automobile dramatically changed transportation and land use patterns around the world. Increased deployment of self-driving vehicles—trucks and cars—has the potential to cause an equally dramatic change in transportation and land use. Given that technological advances are occurring at a faster than expected pace, it is possible that the United States is only a few years away from the beginning of a major revolution in freight movement. Logistics parks that house distribution centers and cross-dock facilities, railroads, trucking companies and beyond need to start, if they haven’t already, identifying how they might be impacted by or benefit from this.
   There are other issues and trends impacting the freight movement industry and the above is not meant to be a comprehensive list, rather it is intended to motivate forward- looking productive strategic discussions. If anything, it should raise awareness that 2017 is likely to be characterized by a lot of change that the freight movement industry must consider.