Currently, the trucking industry is having one of its best periods of the 21st Century even as it risks getting rocked by several political and economic factors.
It is an odd time for the transportation industry, just like it is for the wider economy, as we exist in a period of historic growth but must deal with the growing fear of a global trade war.
The golden model for the transportation industry strikes a perfect balance between supply and demand. However, this balance is just an ideal. As we saw last year, factors like consumer needs, supplier capacity, shipping volume, and global economic trends are constantly shifting. Analysts believe there is no reason to doubt this fluctuation will continue this year.
“It looks like 2019 will continue on the same curvy road,” consulting firm Agforce Transport Services noted in a report.
Freight volume to increase
The trend of increasing freight volume will continue, most transportation analysts believe, but it is expected to slow in 2019 compared to last year.
The trade group American Trucking Associations projected freight volume increased 4.2%, or roughly 16 billion tons, in 2018 compared to the previous year. However, the ATA does not believe that rate of growth is sustainable over the long term.
The ATA believes truck volume will grow 2.3% starting in 2019. The group believes that rate will continue until 2024 when it will drop to an annual growth of 2.2% until 2029. In total, volume will balloon almost 36% by 2029, to nearly 22 billion tons.
“Projected increases in freight volumes demand we act now on important issues facing trucking and the rest of the supply chain like workforce development and infrastructure investment,” Chris Spear, chief executive of ATA, said in a statement. “More freight means we’ll need more trucks and more drivers to continue safely delivering our nation’s goods.”
The ATA says pipelines are sucking up some of trucking’s tonnage. While trucks moved 70% of total tonnage in 2018, that figure will drop 4% over the next decade due to pipelines.
Similarly, trains are expected to move a smaller portion of commodities by 2029 because of pipelines. The ATA estimated about 13% of tonnage was moved by rail in 2018, but trains will move only about 10% in 10 years. This shift will be due to the wider adoption of pipelines, not because of falling rail volume.
Even so, volume is expected to increase year over year for both trucking and rail, with trucking easily retaining its top position as the largest mover of freight for the near future.
Fears of a stumbling economy
Many economists, including the nonpartisan Congressional Budget Office (CBO), believe the economy will significantly slow down in 2019 after a blockbuster 2018.
In a report last year, the CBO projected gross domestic product (GDP) to grow at a rate of 2.4% in 2019, well under the 3.1% rate of growth for 2018. Part of this sluggishness will be caused by production overwhelming the demand in the United States.
“Growth of actual output is expected to outpace the growth of its maximum sustainable amount through the rest of 2018 and 2019, creating excess demand in the economy,” the report explained.
There are fewer alarms about an out-and-out recession, although some experts, like Former Treasury Secretary Larry Summers, think the risk is considerable.
Regardless, trucking companies and other players in the transportation industry will have to grow to meet the increasing GDP growth.
With President Donald Trump continuing to impose new tariffs and other nations responding with protectionist policies of their own, there are reasons to worry about an escalating trade war.
However, many transportation industry experts believe the growing economy will offset this risk.
“Though trade wars are top of mind with the full impact uncertain, the strong economy looks as though it will hold,” Agforce Transport Services continued.
A more pressing issue might be a trucker shortage. Unemployment is at historically low levels, and the transportation industry is feeling the crunch acutely.
The ATA complained there were 63,000 open positions in 2018, and the group expected that figure to double within several years.
Though the Trump Administration is experimenting with lowering the age required to get a commercial driver’s license, other solutions, like offering higher wages for truckers, will likely be explored as well.
Will gas prices go down?
The national average currently sits below $2.25 per gallon. Just a year ago, the national average was about $2.50 per gallon.
Demand for gasoline dipped in the final months of 2018, even during the busy holiday season. The Energy Information Administration (EIA) data registered gasoline demand at 8.6 million barrels per day during the final week of 2018, the lowest demand since February 2017.
The EIA projects wholesale diesel fuel will see an annual average price of $1.94 per gallon in 2019, while retail diesel will cost $2.95. Compared to 2018, this means a drop of $0.19 and $0.22 per gallon, respectively.
The low cost of gasoline will be a factor in fueling, literally, the growth of the trucking industry in 2019.
“As the global crude market continues to be oversupplied, oil prices are dropping, continuing last week’s trend,” AAA spokeswoman Jeanette Casselano said in a report. “This is good news for motorists filling up at the pump.”
The year of the autonomous truck?
Uber made headlines last year with the launch of a self-driving trucking operation named Uber Freight in Arizona.
While truck manufacturers and tech companies are pouring money into developing autonomous trucks, human truckers are probably safe for now.
At the MarketWaves 18 conference last year, U.S. Xpress CEO Eric Fuller said he believed full autonomy, meaning no human is present in the truck, won’t be viable until the 2040s.
“That last 5% of the technology is going to be the hardest to fix,” he predicted.