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Industry shrugs off tariff talk as freight keeps moving

 Trade has continued to grow despite talk of tariffs, and most carriers expect there to be little impact going forward. ( Photo: Shutterstock)
Trade has continued to grow despite talk of tariffs, and most carriers expect there to be little impact going forward. ( Photo: Shutterstock)

With all the focus on global trade uncertainty, among those not overly concerned are the trucking companies

The continued speculation over global trade and tariffs has increased the uncertainty that manufacturers and the businesses that support them face. Most of the trade talk has been limited in scope, and even in segments that have already felt an impact, such as the agricultural community, there is optimism for the future. According to the Ag Economy Barometer, which measures agricultural producers confidence, there was a 26-point decline in July to a reading of 117. In the same survey, though, the long-term outlook in the ag sector remained positive. When asked whether they expect goods times or bad times in the next five years, 47% of producers responded good times. That is up 2% from June’s survey.

It is that kind of love-hate relationship that American industry has with tariffs. Designed to spur domestic production, tariffs can come with some initial pain, such as the ag community is feeling right now. But the long-term gain can be quite positive if the tariffs – or even the threat of tariffs – lead to better trade deals.

One segment of the supply chain that seems to be unaffected by the process is the trucking industry. Freight volumes saw their usual decline in July, but the month is typically the second weakest month of the year. The dip still leaves freight volumes above year-ago levels, as reflected in the DAT Freight Barometer for Vans, which has climbed to 61.30, according to FreightWaves’ SONAR data – its highest point since Feb. 28. Rates remain elevated, with DAT’s national van rate hitting $2.24 per mile for the week ending Aug. 4. That is down from $2.38 a month earlier but in line with past seasonality.

Rate strength should continue with 7.3 loads per truck in July nationally according to DAT’s Trendlines. If seasonal trends continue, that ratio will climb through the remainder of the year as it has each of the past two years.  

Publicly held trucking companies expressed optimism in the freight environment through the remainder of the year, with several raising their forecast. Schneider National’s CEO Chris Lofgren was one of them.

“This is demonstrated by continuing record turndowns of freight in July, which is traditionally one of the two slowest months of the year. Combining this with the intensity of customer interactions to prepare for the surge of demand associated with the second half of the calendar year, we remain bullish on industry performance,” he said.

Second-quarter GDP registered 4.1%, the best performance since 2014, and the economy remains on a strong path – one that tariffs are unlikely to derail, if they even come to fruition in any meaningful way.

“Our general view has been that the administration’s words and actions around global trade have been posturing, a ‘first offer,’ or simply negotiating in the public domain and that ultimately the international trade boat will not be rocked too much in the end, because we believe it would end poorly for everyone,” explained David Ross, an analyst with Stifel, in a research note published last week.

To date, announced tariffs have had little effect on the overall U.S. economy, said Ibrahiim Bayaan, chief economist for FreightWaves. “The tariffs that exist now are still pretty small in the grand scheme of things unless you are dealing specifically with a targeted or downstream industry,” he said.

In fact, U.S. tariffs are actually at all-time lows as a percentage of total impacts at about 2% in 2017.

It is still a situation that bears watching, explained Ross. “The interconnectedness of global supply chains cannot be understated, and the chance of higher tariffs not causing significant ripple effects is zero,” he said. “Many that will be impacted don’t even know it yet, including the U.S. consumer.”

For now, the strong freight environment continues to drive confidence among carriers. Going back to Lofgren’s comment on new truck orders, July set a record at about 52,000 units, and most manufacturers are unable to deliver trucks ordered at this point until 2019. If there was concern over tariffs, fleets would likely not be committing to new trucks quite yet.

Kevin Sterling, managing director and senior equity research analyst at Seaport Global Securities, told FreightWaves that carriers are simply looking at long-term trends.

“July [freight volumes] softened relative to June, but the carriers are looking at a year-to-year basis and July and January are the two softest months [but were still up over last year],” he said. “We are heading into the traditional peak season, so I think that is going to help.”

There has also been no drop off in container volumes from China to the U.S., with imports to the U.S. in June up 6.3%, and both the Port of Long Beach (14.2% year-over-year gain) and Savannah (9.8% year-over-year gain) posting records. Across the country, ports have been seeing record volumes, led by retail growth.

“If tariffs are here to stay there will probably be a shift in how freight flows,” Bayaan noted, as more materials are sourced domestically. “Tariffs make foreign goods more expensive and encourage domestic production. Also, long term, companies will have to think about where they want to locate factories.”

But that’s the long-term outlook. In the short term, nearly everyone agrees that tariffs are hardly causing a ripple of concern at the moment from those tasked with keeping America moving. 

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