Key data points for the year in freight

There are plenty of positive economic data points as 2018 begins, but there are also a few that bare watching. (Photo: Shutterstock)

There are plenty of positive economic data points as 2018 begins, but there are also a few that bare watching. (Photo: Shutterstock)

With third-quarter GDP coming in at 3.2% growth and fourth-quarter GDP also expected to best the 3% mark, which would be the third consecutive quarter of 3%-plus growth, and a newly minted tax plan promising to start moving the economy forward, times would appear to be ripe for trucking.

There are plenty of other positive developments for the industry as well. Spot rates, according to DAT Solutions, are at or near record highs. The introduction of electronic logging devices (ELDs) in December have further tightened an already tight capacity environment. Fleets are continuing to order new trucks, suggesting that they too believe in the economy. Freight volumes continue to grow as manufacturers and retailers see improved business.

If you’re a trucker, what’s not to like?

As we enter 2018, it’s time to take stock of some key economic indicators, and whether they suggest another strong year for truckers. And as with all metrics, there is a mix of indicators, and how much stock you put in one may influence your belief in the future. Despite this, all indications continue to point to a strong 2018, although maybe not as strong as some are predicting.

One measure of the economy’s growth is real disposable income. According the latest data, incomes are growing at just over 1%, that is down from nearly 5% two years ago. Republicans are banking on the tax bill jumpstarting salary growth, so that will take some time to work itself out. Consumer spending was on fire in the last two quarters of 2017, but it may be coming with a price. The nation’s personal savings rate has dropped from 6% two years ago to 3.5%, suggesting that Americans are not saving as much. Credit remains good, though.

These numbers are why some economists are suggesting GDP growth will remain in the 2% to 2.5% range in 2018, rather than the 3% plus we’ve seen recently. Goldman Sachs, though, is predicting 4% global GDP growth, and that would bode well for fleets moving export goods, even if the U.S. economy slowed slightly.

The Conference Board is predicting 2.8% GDP growth this year, adding that as “long as business and consumer confidence remain strong, the U.S. economy should enjoy its best two-year stretch in more than a decade.”

Its Leading Economic Index (LEI) posted a 0.4% increase in November and the Board said solid growth should continue.

“The U.S. LEI rose again in November, suggesting that solid economic growth will continue into the first half of 2018,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. “In recent months, unemployment insurance claims have returned to pre-hurricane levels. In addition, improving financial indicators, new orders in manufacturing and historically high consumer sentiment have propelled the U.S. LEI even higher.”

It does warn, though, that higher rates from the Fed will be coming as the impact of the tax plan on the nation’s debt and faster economic growth factor into the equation. That could impact fleets looking to finance new equipment.

From a trucking perspective, FTR’s Shippers Conditions Index continues to show tightness in the market, providing more leverage for fleets. “Conditions for trucking and shipping have been diverging dramatically since the hurricanes hit in August,” said Eric Starks, chairman and CEO at FTR. “The hurricanes highlighted the lack of extra capacity available in the system. This has been followed by continued strong freight conditions in Q3 and into Q4. Shippers are really feeling the pinch right now, and there is fear that the ELD mandate will impact capacity in the spring. We have essentially hit the 100% capacity mark – there is little, if any, excess truck capacity. Add in regulations, continued freight growth, or winter storms and we could be pushing that above 100%. That would leave shippers scrambling to get loads delivered. And that means paying premium rates for those deliveries. It may be a tough first half of 2018 for shippers.”

The American Trucking Associations is forecasting a 3% growth in freight for each of the next five years.

One drag may be fuel prices. Toward the end of 2017, diesel fuel prices started climbing as global crude supplies became a big more balanced. There is no significant increase forecast for 2018, but fuel prices are always a volatile item subject to a variety of factors, such as weather and politics.

A recent Morgan Stanley survey collected the views of industry participants heading into 2018. The firm said a plurality of respondents (41%) believe rates will rise over 4% year-over-year in 2018 with the average increase of 7.6%. Carriers and brokers continue to report truckload tightness, but some shippers say they are starting to see some softness in some markets.

Of those surveyed, 75% said current truckload demand remains strong and 64% expect it to remain strong in the next three months. TL supply is tight, said 74% of respondents, and 66% expect it to remain that way for the next three months. A full 83% say rates are higher compared to a year ago and 73% believe they will remain that way for the next three months.

“Confidence is high, until a hiccup in the economy. We'll see the impact of ELD's in real time after the holidays, or maybe not until April? The forecast looks to be clear sailing through June with continued tight capacity,” said one carrier.

Another said that it is seeing high single to double digit percentage rate increases in its national account bids while a third said it is the strongest/tightest market since 2005.

Shippers, on the other hand, see some differences. While prices are up, some believe there is plenty of capacity available and that rates shouldn’t continue rising.

“Pockets are starting to soften. I would expect the market to take a winter lull before ramping up to current levels in spring. The one thing that could throw off the market again would be another natural disaster,” said one.

There is enough positive news to suggest 2018 will again be a strong one for trucking, but there are a few indicators that could suggest trouble in the not-too-distant future that require monitoring.

Here’s hoping 2018 turns out better than we all expect.

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