Economists predict 'solid' US growth, higher truck rates
More "solid" and steady U.S. economic growth will increase freight demand and boost shipping costs and domestic transportation rates in 2015, economists and analysts said at the SMC3 JumpStart 2015 conference here Jan. 20.
After a year of sharp price increases in 2014, shippers at the three-day logistics conference were told to expect to pay even more for truck capacity in 2015. Last year was an "inflection" year for truckload rates, and 2015 "will be the year of real pricing growth," said Benjamin J. Hartford, senior equity research analyst at Robert W. Baird & Co.
"I think we could see several years of mid-single-digit rate growth on the truckload side," Hartford said. "It’s all rooted in productivity issues," including a smaller pool of truck equipment, the shortage of truck drivers and tighter regulatory constraints on operations.
"We'll certainly see pricing growth in the front half of the year," he said. A lot of that growth "will be demand dependent," he said, as the economy continues to grow at a faster pace.
"U.S. growth will be solid," Chuck Clowdis, managing director of transportation advisory and consulting services at IHS Global Insight, told the shipper, carrier, logistics and technology executives at the SMC3 event. IHS forecasts U.S. gross domestic product will grow 2.7 percent in 2015. "Consumers are spending money for a change, though consumer confidence is still tempered with caution," Clowdis said. "I’m a big believer in watching consumer behavior. Retail is the best bellwether of what’s happening in trucking."
U.S. retail and food sales were up 3.2 percent year-over-year in December, though down 0.9 percent from November, according to the U.S. Census Bureau. Total sales reached $442.9 billion last month. Fourth-quarter retail sales were up 4.1 percent year-over-year, and 4 percent for the full year compared to 2013, the Census Bureau said Jan. 14.
The consumer recovery began to catch up with the recovery in industrial activity in 2014. Excluding utilities, U.S. industrial output rose 0.7 percent in December, with manufacturing output increasing 0.3 percent, according to the Federal Reserve Board. For the fourth quarter as a whole, industrial production increased 5.6 percent year-over-year, the FRB said.
Lower oil and energy prices powered much of that growth, and will continue to stimulate economic activity, though low prices are also slowing U.S. energy production.
"As oil prices fall, people who were financing rigs, drilling activity, start to slow down, and you get a significant reduction in industrial activity," said Don Ratajczak, consulting economist at Georgia State University. That slowdown will be temporary, he said, and economic activity will pick up as oil prices rise toward $70 per barrel in the second half of the year.
The U.S. is the now largest producer of liquid fuels, and "production is still growing," Ratajczak said. "It will probably peak in the middle of the year. The (energy companies) are still bringing in wells and developing new transportation modes to transport these products."
Ratajczak believes U.S. GDP rose 3.5 percent in the fourth quarter, which would make that quarter the fifth out of six in which GDP rose 3.5 percent or more, starting in the 2013 third quarter. That's the type of extended, steady growth that analysts such as Eric Starks, FTR president, and Bob Costello, American Trucking Associations chief economist, in 2013 and 2014 said would be needed to significantly increase freight demand and tighten capacity.
"If you're deciding whether to buy trucks and new equipment, this is a good time," Clowdis said, though, he added, "be cautious in adding that equipment." Class 8 orders in recent months have been "prolific," he said, as truck operators respond to increased demand.
The ATA For-Hire Truck Tonnage Index advanced 3.5 percent from November to December, and was up 5.2 percent year-over-year. "Overall, 2014 was a good year for truck tonnage with significant gains throughout the year," except January, Costello said.
The strong U.S. dollar will continue to attract investment to the U.S., Ratajczak said. That will spur activity within the country and North America as a whole. "The world is coming to the U.S.," he said. However, the strong dollar does hurt U.S. exports. "We're starting to see production picking up at foreign assembly plants, while our plants stall out, and that’s because of the strong dollar," he said. That’s an issue shippers and carriers will have to contend with, but he urged them to be a bit more optimistic than cautious.
"It's time for a little bit of confidence that growth is going to accelerate," Ratajczak said. "For shippers, that means have confidence in the growth of your activity and plan ahead. For the carrier, this is a great environment. Just don’t add too much capacity. Add more trucks by buying your competitors, rather than buying more trucks," he said.
William B. Cassidy, Senior Editor at JOC.com
Restart rollback already in effect
A stroke of President Obama's pen yesterday immediately suspended provisions of the 34-hour restart rule that had limited truck drivers to using the restart only once a week and had required them to take two consecutive 1:00 to 5:00 am rest periods in that time.
"This really matters since the restart requirements were suspended as soon as President Obama signed the bill," Shoaib Makani, founder/CEO of electronic driver log provider KeepTruckin, told FleetOwner.
Thousands of nominations came in this year. As they were carefully reviewed, ten top characteristics stood out.
He pointed out that "the actual bill states that 'the rule referred to in subsection (a) shall have no force or effect from the date of enactment of this Act through September 30, 2015, and the restart rule in effect on June 3 30, 2013, shall immediately be in effect.'"
Under the sponsorship of Sen. Susan Collins (R-ME), legislation forcing the rollback of those restart provisions had been successfully attached to the gargantuan omnibus spending package that the Senate at last passed on Saturday night.
Dubbed the Collins Amendment, the restart measure also requires the Federal Motor Carrier Safety Administration (FMCSA) to carry out what has described as a "real world" study to assess the operational, safety, health and fatigue effects of those provisions of the Hours of Service regulations.
The affected rules will remain suspended until Sept. 30 2015 or until the agency has completed its study.
Whether or not the incoming Congress will extend the suspension or make permanent the rollbacks could hinge on what is revealed by the FMCSA study.
Indeed, at least one lawmaker who will be returning to Capitol Hill in January is already aiming to see the rollback reversed. Sen. Richard Blumenthal (D-CT) told Politico.com: "I certainly will make an effort legislatively to reverse the rollback."
"All of the folks who have an interest in transportation safety are dismayed and disheartened by this rollback of common-sense safety rules, everyone from the Teamsters and the truck drivers to the safety advocates," Blumenthal also told Politico.com.
"Reposted with permission from FleetOwner"
Federal Mediation for West Coast Port Labor Negotiations
Finally, there has been some progress made on the labor negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). That progress has come in the form of Scot Beckenbaugh, a senior FMCS (Federal Mediation and Conciliation Service) mediator.
Both parties had recently requested assistance in settling this dispute. Unfortunately the FMCS cannot announce any upcoming meeting dates or comments, but we can be sure that this is a step in the right direction. Government officials, manufacturers and retailers can all see this as a good sign.
These negotiations began in early May and have still not been settled. Just recently the PMA raised the situation when they accused the union of acting in their own self-interests instead of the best interests of everyone involved.
While this dispute is not yet settled, this is a positive sign that we may soon see a resolution. Once a deal is in place, operations can fully resume and the next steps of improving the ports can begin.
Burnson, Patrick. "Now we’re talking: West Coast port labor negotiations get a middleman". Logistics Management. 30 December 2014. Web. 8 January 2015.
Phillips, Erica E. "Federal Mediators to Assist in West Coast Port Labor Negotiations". Wall Street Journal Online. 6 January 2015. Web. 8 January 2015.
Here today, up tomorrow: Why gas prices may be on the rise
Enjoying those prices at the pump? You might not want to get used to them. A former top oil executive says the price of gas at the pump could double by the end of the year.
In an interview with CNBC, former Shell Oil President John Hofmeister predicts that U.S. oil could skyrocket from the current levels under $48 a barrel to $80 by this fall, just as consumers are getting used to the windfall from lower gas prices. That would force gas prices to double, from the current $2 to a whopping $4 by next winter.
The reason, he says, is the oil companies are masters of the simple economics of supply and demand.
"The industry is the best in the world at cutting costs when they have to reduce spending. What's happening is we're shutting down drilling rigs," Hofmeister said. "Not completing the wells that have just been drilled. And we're going to eat off the surplus oil out there probably by mid-year."
Hofmeister, who ran Shell Oil USA from 2005-08, retired and founded Citizens for Affordable Energy. The non-profit organization seeks the growth of natural gas as a transportation fuel alternative to oil.
He says U.S. producers have idled 500 rigs over the past four months as oil prices plunged. He says the result of that production slowdown eventually will be felt at the pump. This month, Baker Hughes reported that U.S. drillers had taken a record number of oil rigs out of service amid the price slump. Last week alone, oil rig counts tumbled by 55 to 1,366.
Hofmeister predicts gas prices could pass the $3-a-gallon range in September and October. By December and next January, he says, gas prices will be nearing $4 a gallon.
Looking further into the future, the former oil exec sees prices rising to "$5 gasoline in the U.S. as we approach the end of the decade."
Although the Republican-controlled Senate passed the Keystone XL pipeline this week, Washington observers say President Barack Obama is certain to veto it.
Hofmeister says the Keystone XL pipeline will have no impact on fuel prices in the near term. And he tells CNBC he doesn't expect it to pass during Obama's tenure.
"Whoever is the next president, Democratic or Republican, must look at the needs of the nation 20 to 30 years down the road," he added.
While still a fossil fuel, natural gas has half of the carbon in the molecule that an oil molecule has, Hofmeister explained. "It's a reduction in fossil fuel emissions, or carbon emissions, by switching to natural gas."
Hofmeister sees natural gas being turned into four types of alternative fuels. "You can have ethanol and methanol for passenger cars," he said. "CNG (compressed natural gas) and LNG (liquefied natural gas) for trucks and trains. Natgas "takes the pressure off oil. And it also ends the need for the U.S. to import oil."
Hofmeister says that unless the U.S. reduces oil consumption, "we will face inevitable and perpetual volatility in oil, especially as we approach the end of the decade."
Written by Trent Gillies, CNBC Producer, "On the Money", and published on CNBC.com
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