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Trucking Turns It Up

Despite lingering headwinds, growing optimism coming from the U.S. trucking industry

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There is no industry more essential to the health and welfare of the U.S. economy than the trucking industry. America’s trucks move the vast majority of America’s freight – from farm to factory to warehouse to retailer to home, trucks dominate freight transportation.

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When looking at the industry, it is important to appreciate its size. Acc­ording to the Department of Transportation, there are more than one million interstate motor carriers – including for-hire, private fleets and owner-operators. And those carriers moved 9.7 billion tons of freight in 2013 – nearly 70% of all the tonnage moved by trucks.

Simply put, every grocery store, shopping center, car dealership, book­store or pharmacy gets their goods via truck. And in today’s on-demand economy, every time a person clicks the checkout button on an online retailer, another bit of freight is put on the back of a truck.

Trucking is a $681 billion industry; more than 81% of all freight-related dollars were paid to the trucking industry. With more than 3.2 million drivers – and 7 million employees overall – trucking really is the lifeblood of the U.S. economy.

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In looking at the current state of the economy, and at truck freight, I’m optimistic despite what was a rough start to 2014. In the first quarter, we saw a 2.1% decline in real (i.e., inflation adjusted) gross domestic product, but that was in large part due to the extra­ordinarily harsh winter and a draw down in inventories. Those inventories were in large part rebuilt during the second quarter, which when coupled with solid consumer spending, boost­ed second quarter GDP to a robust 4%. I also see a good second half of the year. In fact, I suspect the Fed­eral Reserve will end up increasing interest rates soon­­er than anticipated be­cause of the solid economy.

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This is good for trucking – part­icularly because of what is pushing our eco­nomic growth. Right now, and for the next few years, goods growth will be more robust than services spend­ing. This is great news for trucking be­cause, of course, goods can be moved in the back of a truck and services cannot.

Bouncing Back

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After over-spending prior to the Great Recession, especially on hous­ing, Americans have cleaned up their financials. Debt levels have come down and savings have gone up. That means consumers are poised to spend again and we are seeing the first signs of spending.

Housing appears to be reviving, which is also good news for trucking, but a real strong point for the eco­nomy and trucking is factory output. Advances in productivity have put the U.S. on par with China, Brazil and India when it comes to manufacturing.

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Last year, U.S. factory output grew 2.9% and this year that could go up to 3.5%. That figure could even be closer to 4% next year, and while that doesn’t sound like a lot – from 1980 through 2013, factory output averaged just 2.4% growth annually.

And on top of it all, America is on pace to be, in short order, the number one energy producer in the world, something that was unthinkable just a few years ago.

All of these trends are leading to more freight, even for sectors that had not really participated in the current recovery like generic dry van freight. In fact, dry van truckload freight is on pace to have the best annual growth in a decade.

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There are challenges, though. For example, miles driven per truck con­tinue to lag behind other demand meas­ures. This is due to many issues, including a drop in average length of haul and drivers wanting to get home more often.

This reduction in average length of haul is nothing new – during the past 14 years in the for-hire dry van truck­load market, the average length of haul has dropped from about 700 miles to about 500 miles. However, important for the tire manufacturing industry, I believe most of the drop in miles-per-load are behind us and we can expect many more reductions to come at a slower rate.

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Also relevant to the tire manufact­urers: we’re seeing fleets continue to shrink even though average age of the Class 8 fleet is still near historic levels.

There are a couple of reasons for this, including that some fleets are unable to expand because they can’t find drivers. Large truckload carriers, in particular, are choosing to downsize their fleets because they cannot hire enough drivers to keep all their cur­rent trucks on the road.

We also hear from smaller fleets that they are struggling with the new price of tractors, which cost signif­icantly more than just a few years ago due primarily to new envi­ro­nmental regu­lations. Many of these fleets are trad­ing in two or more tractors in order to afford one new trailer. It’s impossible to grow your fleet by doing that.

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The driver shortage is a real concern to fleets of all sizes. At the moment, we project that there’s a short­age of about 35,000 qualified drivers. Current­ly, we need to hire nearly 100,000 new drivers to the industry every year.

Why so many drivers? Simply put – economic growth, driver retirements and, to a lesser extent, people leaving the industry for other jobs as the labor market improves.

Despite these challenges, the outlook for trucking, and those selling them goods and services, is very prom­ising. Over the next 12 years, the truck­­- ing industry will go from moving roughly 9.7 billion tons annually to moving nearly 12.4 billion tons – a 27.8% increase.

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With that increase, trucking’s marketshare will also increase. Trucks currently move 69.1% of all freight tonnage – a figure that will grow to 70.9% by 2019 and to 71.4% by 2025.
If you look at specific sectors, truckload volumes will grow 3.5% annually from 2014 through 2019, and less-than-truckload volumes will grow about 3.8% annual over that same time period.

A growing economy. More manufacturing. Growing population. Increasing energy production. These are all things that are combining to make me very optimistic about trucking’s future. There are, however, risks.

We continue to see the impacts of congestion and a failing infrastructure system. Combined, these two things cost the trucking industry $9.2 billion a year, according to the American Transportation Research Institute.

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This is a real concern, and part of the reason why the trucking industry is pushing Congress to pass a robust, long-term highway bill to improve our roads and bridges.

There are other headwinds, to be sure, but overall I continue to be very optimistic about where the economy and trucking are headed. Tiremakers and their independent dealers should be, as well.

 

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