Overcoming Cliffs, Ceilings and Double-Dips

I’m a numbers guy, but I’m also an optimist. I look at the last-minute agreement in Congress to avoid the “fiscal cliff” and I see opportunity for a decent business year for most companies. Maybe the compromise wasn’t a great deal for either political party, but it kept the stock market from tumbling, and it kept income tax rates stable for most Americans.

I admit that prospects don’t look great for the U.S. economy in the next couple of months. The fourth quarter of 2012 will likely turn out to be somewhat of a disappointment, and the first quarter of 2013 could be even worse. We might even have “negative growth” in GDP. Or to restate, a “decline” in GDP. Now it takes two consecutive quarters of negative GDP to define a ‘recession’ and I don’t see that happening.

There are a few important, positive trends that should help to get the economy back on track, and keep it there, by Q2 2013, however. Here is my short list: Energy, Exports and Emotion.

1. Energy

Momentum in the domestic energy field looks unstoppable. New shale oil and natural gas resources are being discovered and tapped, and the U.S. continues to be on track to become a net exporter of fuel in the coming years. The impact of increased domestic supplies has benefits on several fronts. Energy prices will drop, which will boost manufacturing and add high-paying jobs nationwide, and lead to accelerated growth in construction of new infrastructure. Energy and Trucking – Trucking benefits when energy prices drop, even if the impact on diesel fuel is slight. Long distance trucking has been losing out to rail intermodal and this shift should slow with lower diesel costs. Plus, natural gas is becoming a viable alternative that is gaining serious market share.

2. Exports

We hear a lot about problems in Europe that are curbing their demand for U.S. trade goods, and our trade imbalance with China is a popular subject for despair. It’s all true. But there is good news on the export side, too. One of our major trading partners has a rapidly growing economy and a huge hunger for American products. Think about it. Yes, you in the back? Right! It’s Mexico! Our neighbor to the south had a whopping 6% GDP growth in 2012, and net migration and trade are moving in a southbound direction to take advantage of the boom economy. Mexico is investing in highways and other infrastructure, and it is well positioned to absorb U.S. goods as well as to bolster the growth of U.S. businesses with near-sourced manufacturing capacity and logistics support. Exports and Trucking – Some of the largest trucking companies are already positioning themselves to ramp up operations in Mexico, with trucks and warehouses on the rise. A few Mexican trucks are crossing into the U.S., but most freight is still transferred at the border, creating new opportunities for carriers of all sizes in Southern California, Arizona, New Mexico and Texas. Reefers have been working those markets, hauling inbound freight during produce season for years, but we expect an increase in van, flatbed and specialty freight, as well, with growing volume in both directions.

3. Emotion

People are so tired of hearing about recession and unemployment, fiscal cliffs and debt ceilings. The world didn’t end on December 21, as predicted by the Mayans, but the future looked uncertain enough to make consumers cautious about spending during the Christmas season. Now the so-called “cliff” has been averted, and consumers may be ready to loosen the purse strings just a bit. Congress’s last-minute deal wasn’t great, but it could have been a lot worse. Payroll taxes are going back up, and top earners will pay more on income and capital gains, but popular tax credits and deductions remain and the Alternative Minimum Tax has been adjusted for inflation. That means most taxpayers won’t see a big change this year, and the market will probably not fall apart even if GDP goes negative for one quarter. Businesses expect Q1 to be soft, they’ve already dialed that in, and they will be ready to rebound in Q2. Emotion and Trucking Freight volume is driven by demand for manufactured goods, whether imported or built in the U.S.A., and a lot of product forecasts are based on expected demand from consumers. If and when consumers seem to be prepared to spend money, the freight will begin to flow. There may be a lag, because Q1 is likely to be slow (see my initial comments, above) but things should pick up by the second quarter. If all goes well, the second half of 2013 will bring increased freight and a sales boom in Class 8 trucks.

So, let’s assume for a minute that my optimism is rewarded, and the economy begins to expand rapidly in the spring. You just know that all the worrywarts will start fretting about capacity shortages, driver retention and all the other downside risks of economic growth. That’s when I’ll point to another silver lining: Yankee ingenuity. The U.S. has the most productive work force in the world. As a nation, we excel at solving problems in creative and unexpected ways. If the worst problem we face is that the economy starts growing too fast for its transportation infrastructure, I’m betting that we will also see ever more efficient logistics and transportation management solutions that ease us through the choke points and get everyone back on the road to prosperity.

For lane-specific benchmarking and forecasting data on freight rates, consult DAT Truckload Rate Index. For a weekly report on spot market freight trends, read DAT Trendlines and DAT Truckload Trends.