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FTR offers steady economic outlook for trucking

Posted: September 12, 2019 by John G. Smith

Avery Vise, FTR

Avery Vise, FTR’s vice-president — trucking, points to several factors that show a steady trucking environment. Truck loadings, for example, are flat.

INDIANAPOLIS, Ind. – Spot rates are down, freight demand has slowed, and there’s been a surge in fleet bankruptcies in the U.S. Overall truckload rates are expected to be down 7% this year and down 1.3% in 2020.

Avery Vise, FTR’s vice-president – trucking, is hardly sounding the alarm. Digging deeper into economic indicators, he sees a trucking environment that is relatively stable.

FTR’s Trucking Conditions Index sits at a neutral level, and its Loadings Index predicts flat trucking activity for the remainder of the year before it leads into a gradual recovery. Active truck utilization may sit below a 10-year average, but it continues to climb, too.

The good news might be a surprise to some fleets, depending on the markets they serve.

“It’s sort of ugly, especially if you’re in the industrial sector,” Vise told an audience at FTR’s annual meeting, referring to the Institute for Supply Management (ISM) Index. Then again, even that isn’t as bad as it could be. “It’s almost more flat than it is declining,” he said. “That’s not a horrible place to be.”

It’s not the only silver lining he sees. While U.S. housing starts are weak, home sales have been buoyed by factors like mortgage rates that are at their lowest level since November 2016. That could be a predictor of construction to come … assuming that consumers are confident and have jobs to fund the purchases.

Indeed, the U.S. consumer remains a driving force in the economy south of the border. Retail sales were at an all-time high in July, and year-over-year growth is solid even if it’s not as high as last summer. Job openings are high and unemployment is at nearly a 50-year low.

Crude oil that hovers above US $50 per barrel has led to stable diesel prices. The price at the pumps is about 27 cents less per U.S. gallon than a year ago.

Carrier authority

The number of lost carriers is being offset by new carriers that are securing operating authority.

A balanced spot freight market

But what happened to the last year’s surge in spot market rates?

“Spot rates are not strong,” Vise said. “At the bare minimum, you could say that rates have stabilized.”

While spot rates have been sitting below a five-year average for most of 2019, the gap appears to be closing. The volume of available trucks also remains low despite broader growth in the number of trucks and drivers overall, he said.

As for the year to come, “we expect spot rates will be a slight bit higher than they were over 2019.”

Still, there are questions on the horizon.

One of the worrying trends is in the form of high inventories stuck at levels that haven’t been seen since before the 2017 hurricanes, Vise said. “If there is a pewter lining to all this disruption in trade, maybe in coming months we’ll be drawing down these inventories.”

Many U.S. fleets won’t be around to see it. Trucking bankruptcies and closures have been on the rise, too.

“We are seeing carriers losing authority at a higher rate than we’ve ever seen it,” Vise said. But that is being offset by more for-hire companies earning operating authority.

“It’s still not really the kind of collapse in the term of the number of carriers.”

Shifting trucking regulations

Then there are the unknown forces to come in the form of a changing U.S. regulatory environment.

Proposed changes to hours of service would allow drivers to pause their 14-hour driving window for up to three hours by taking off-duty time, and add flexibility to the split sleeper berth option. Other changes would effectively make the 30-minute rest break requirement irrelevant, Vise said.

Then there are the proposals to add two hours to a driver’s workday under the short-haul exemption from electronic logging devices (ELDs), adding 50 miles to the radius allowed under the short-haul ELD exception, and adding two hours to the driving time available during adverse driving conditions.

Comments on the proposed hours of service rules are due Oct. 7. But even if fast-tracked, the changes still won’t take hold before the second or third quarter of 2021, Vise predicted.

A push for national entry-level driving training standards and a deadline of Feb. 7 also continues to push forward, despite news that the Federal Motor Carrier Safety Administration is looking to delay part of those standards. Once the rules take hold, however, Vise doesn’t expect them to have much of an impact on driver availability.

The changes don’t stop there.

As of Dec. 16, any fleets with automatic on-board recording devices (AOBRDs) need to shift to ELDs when operating in the U.S. And a new drug and alcohol clearing house will be established on Jan. 6, potentially catching those who refuse or fail a drug test at one carrier and simply apply for a job with another fleet. The latter issue could be bigger than expected if a large share of carriers have not been reporting declined tests or positive results during reference checks, he added.

And there’s the reality that economic predictions always rely on assumptions. Many economic factors can shift on a presidential tweet.

“We almost had tariffs on Mexican goods in July,” Vise reminded the crowd.

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