Schneider economist warns of severe recession, truck shortage

Schneider economist warns of severe recession, truck shortage    The United States economy is headed for a severe recession within 18 months, and when it finally rebounds shippers will end up paying much higher rates for trucking because the contracted industry fleet will be unable to meet demand, predicted Noel L. Perry, the chief economist at giant motor carrier Schneider National.
   Speaking on a panel at the Transportation Research Board’s annual conference in Washington, Perry boldly stated that the nation will soon experience its “worst recession since 1983,” adding in response to questioning that he would even put down money on the likelihood of a severe downturn in the economy.
   Capacity in the U.S. truckload market has been tight for the past few years as carriers have been more judicious in expanding fleet size to focus on profitability, even as a strong economy and rising imports have pushed up demand for trucks to move goods. As business falls off, trucking companies will layoff workers and stop replenishing the 12 to 20 percent of their fleet that they normally use up each year.
   “We are going to have a relatively strong reaction to a frightening recession,” Perry said, and when the economy comes back the trucking “industry will already be at a very high capacity utilization rate and there will be a severe shortage of capacity of the kind that we have not experienced.”
   Perry predicted that in 2009 the pendulum will have drastically swung from trucking companies and drivers being the victims of market conditions to shippers as victims “because they will have to pay economic rent” for access to trucks.
   Trucking prices have increased at a higher rate during the past two years as productivity has started to decline and labor, fuel, equipment and insurance costs skyrocket. Shippers should continue to expect steady price increases in the years to come, Schneider’s director of market research said.
   “Unfortunately, the customer community was raised on 20 years of the opposite (low prices) and finds it hard to believe that things have changed,” Perry said.
      Motor carriers will continue to be more selective about the freight they accept so they can focus on profitable routes, he stressed.
   “The difference between good and bad freight, the pricing between easy to move and hard to move freight, is rapidly expanding. So the biggest thing that the shipping community has to get used to is that, if I want to go to Boise on a Friday night I have to pay a lot more than if I want to go to Baltimore every day of the week,” Perry said.
   The trucking industry is faced with a driver shortage that experts predict will only get worse as fewer people are attracted to a tough lifestyle. Economic forecasting firm Global Insight estimated last year that there is a shortage of 20,000 drivers for long-haul trucking and that the gap will widen to 111,000 by 2014. The overall workforce to sustain the economy, let alone trucking, is beginning to shrink as population growth slows.
   Perry said the workforce solution for the trucking industry lies in new immigrants.
   “The first company that figures out how to legalize immigrants will be a huge winner,” Perry said, adding that Green Bay, Wis.-based Schneider National has already begun to make recruiting people from different backgrounds a major point of emphasis.
   “Ten years from now our company will have a very substantial immigration-based driver force,” he said.
   President Bush has proposed a guest worker program so that immigrants from Mexico and other nations can legally enter the country to work. Under the proposal, the workers would register with the U.S. government and periodically would return home. But illegal immigration is such an explosive political issue that most observers do not believe Congress will pass significant immigration reform legislation in the near future.
   Randy Mullett, vice president of government relations for transportation company CNF, said the Department of Labor and other parts of the Bush administration are aware of the labor shortage in trucking and the general economy. He said a small policy network is starting to develop to formulate ideas to deal with the issue, but that there would be no movement at least until after the next election.
   Congressional elections will take place in November.