In The News

Market researcher sees bright future if feds ease up

KISSIMMEE, Fla. — John Larkin of Stifel, Nicolaus and Co. told attendees of the Truckload Carriers Association's 77th Annual Convention here March 3 the future looks bright for trucking if the feds will ease up.

Managing director of transportation capital markets, Larkin touched on a number of economic sectors, using tables and graphs projected on large screens to emphasize the detail.

“The future looks bright” for trucking and the economy as a whole, he said, “provided the government can get out of the way.”

Larkin said that low inventories need replenishing because the inventory-to-sales ratio has been declining for 20 years to a low point in 2012. It’s been steadily increasing since then. “This will be the year the economy breaks out of slow growth,” he predicted.

Another factor he said is impacting inventories is the cost of credit. Low interest rates generally equal higher inventories, as businesses can afford to borrow to invest in products.

The Institute for Supply Management’s Purchasing Manager’s Index (PMI) is a measure of the business sector based on economic factors like production levels, new orders and inventories. A PMI greater than 50 indicates an expanding manufacturing economy.

According to Larkin, the U.S. 30-year average is 52. Since 2009, he said, the PMI has increased, then dipped before increasing again. Currently, it points to a slow expansion.

Unemployment has dropped to pre-recessionary levels, Larkin said, but with a catch: In October 2009, unemployment reached 10 percent. That number has declined to its current level of 5.5 percent. What Larking called “distressing” is the percentage of the population that is available and willing to work, which has dropped from 67.2 percent to 62.9 percent in recent years.

One reason, according to Larkin, is the number of “baby-boomers” reaching retirement age. Another is the availability of social welfare programs that incentivize some of the unemployed to stay that way.

The impact on the workforce is enough, according to Larkin, to impact the truck driver shortage as well.

The recovery from the recent “great recession” comes with some issues, too, he pointed out, as 22 percent of the jobs lost when the economy staggered were part-time or low-wage jobs. As the economy returned to growth mode, 44 percent of the new jobs created were in the part-time or low-wage category.

Obamacare is a part of the reason; employers aren’t required to provide expensive health-care insurance for employees who work less than full-time hours. The effect, Larkin noted, is further erosion of the middle class.

Industries that added the greatest number of jobs during the recovery were health care and leisure and hospitality, two industries that are growing fast because of large numbers of aging baby-boomers.

On the other end of the spectrum, the construction industry is growing slowly and is still way below its August 2008 peak. Housing starts dropped 79 percent during the recession and have yet to recover.

In the meantime, automation is responsible for much of the growth in manufacturing. Robots are cheaper, work 24/7 and never need a break. So, as manufacturing grows, new jobs aren’t being created, he explained.

The good news is that automation makes U.S. manufacturers more globally competitive, creating more markets for American products. So, while the U.S. may be a global leader, manufacturing is depressed around the world. “The U.S. is the best looking house in a crummy neighborhood,” he noted.

Larkin sees positives for trucking in energy development and technology, especially in 3D printing, which is revolutionizing manufacturing. He expects trucking to have more parts to haul as U.S. manufacturers adopt the technology, shipping to U.S. assembly plants instead of ordering ready-made products from overseas.

Capacity issues could prove to be critical to the industry in the near future. Legislation like Compliance, Safety Accountability (CSA), Hours of Service (HOS), Electronic Logging Devices (ELDs), drug testing procedures and speed limiters will remove some drivers from the fleet and reduce the productivity of those who stay. Larkin predicts the driver shortage will reach 240,000 drivers by the year 2020.

To combat capacity issues, Larkin thinks Congress will be forced to address the highly controversial issue of Longer Combination Vehicles (LCVs).

Another proposal the industry may push is the hiring of younger drivers, bringing 18-year olds into the industry before they begin careers in other fields.

Oil should remain near or below $50 per barrel, Larkin predicted, but diesel fuel prices won’t closely follow because of refinery constraints. In any event, he said, “Cheap oil is temporary,” explaining that increased demand and reduced drilling activity will push prices back up in the long term.

He predicted oil prices in the $80-$100 per barrel range within the next 18 months.

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