Fleet Management News & Business Info | Commercial Carrier Journal
Issue link: http://read.dmtmag.com/i/936627
6 commercial carrier journal | february 2018 All signs point to a healthy 2018, but threats remain As the economy strengthens and freight conditions steadily improve, new trade policies and infrastructure funding proposal could put a dent in carrier profitability BY JEFF CRISSEY I f freight trends in 2018 continue where they left off in 2017, the trucking industry should be in for a great year, allowing carriers to give drivers long-overdue pay raises, order new equipment and just maybe add a little cash to the bottom line. The American Trucking Associations' Truck Tonnage Index finished 2017 up 3.7 percent from 2016, even after a 5.7 percent dip in December. "Despite the decline in December, last year was a solid year for truck tonnage, especially during the second half of 2017," said Bob Costello, ATA chief economist, who remains bullish on 2018's prospects thanks to tax reform, housing construction starts, factory activity and solid retail sales. As capacity continues to tighten, freight rates show no signs of slipping. Per-mile truckload linehaul rates reached an all-time high, according to the Cass Truckload Line- haul Index, up 6.2 percent in December 2017 compared to December 2016. "In just the last six months, our pricing forecast has in- creased from a -1 percent to 2 percent change, to 6 percent to 8 percent, and now gives us reason to believe the risk to our estimate may be to the upside," said Donald Broughton, managing partner and principal of Broughton Capital. According to DAT Solutions' DAT Freight Index that measures demand for transportation services, truckload van rates in the spot market hit a record high in December 2017, averaging $2.11 nationally. As another indication of tightened capacity, DAT also reported nine loads available per every truck in its network in December, the highest monthly load-to-truck ratio ever recorded. If analyst predictions hold true as ELD enforcement ramps up in the second quarter of 2018 and driver availabil- ity worsens, truckload capacity could tighten further and drive rates even higher. The Trump administration should take a bow for enacting pro-business policies to grow the U.S. economy. However, while many are hard-pressed to remember the last time trucking conditions were this good, new ad- ministration strategies on trade and infrastructure funding could stall some of trucking's gains in 2018. Last month, Chinese solar panel makers and Korean washing machine manufacturers felt the sting of the White House's "America First" trade policy to correct trade im- balances when the administration imposed tariffs as high as 30 percent. That decision, and any others like it in the future, is a double-edged sword. It's hard to argue against growing U.S.-based manufacturing and adding jobs, but large tariffs on high-dollar imported goods could drive down consumer spending. Then there's the renegotiation of the North American Free Trade Agreement, a partnership driving $6.5 billion in annual revenues from cross-border truck traffic with our Mexican and Canadian trade partners. The fallout of scut- tling the 24-year-old NAFTA would have sizable negative consequences on the trucking industry. Finally, there's the subject of infrastructure funding. Trump made no secrets about seeking public-private partnerships while campaigning for office, but language in a leaked White House document last month reportedly detailing the administration's forthcoming infrastructure plan could, among other things, lift a ban and allow states to toll existing interstates as a mechanism to fund new infrastructure-related projects. ATA, which supports a per-gallon tax hike on gas and diesel with its proposed Build America Fund, was quick to weigh in on tolling after the leaked document surfaced. "So-called 'creative financing' tools are a road to nowhere, as study after study shows the shortfalls of tolling and the unintended consequences that tolls impose on motorists and surrounding communities," said Chris Spear, ATA president and chief executive officer. "There is nothing 'conservative' about tolling." Taxes generated from commercial truck diesel and gas and other trucking-related excise taxes currently provide an estimated 45 percent of the Highway Trust Fund. Toll- ing would essentially mean trucking again would shoulder a disproportionate amount of the burden to help fund infrastructure improvements and could further erode into carrier profit margins. UPFRONT JEFF CRISSEY is Editor of Commercial Carrier Journal. E-mail jcrissey@ccjmagazine.com.