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Uncoupling from the multiplier effect

Transportation analyst suggests the impact of dampened global trade may affect U.S. trucking market

By: Eric Johnson
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Photo: Eric Johnson
   The domestic transportation industry should be under no false illusions about the impact that dampened international trade could have on its volume.
   This week, Ben Hartford, senior transportation research analyst at the investment firm R.W. Baird, displayed a series of pertinent charts at SMC³’s annual JumpStart conference in Atlanta characterizing the linkages between trade “openness” and transportation volumes.
   One slide showed how imports and exports as a percentage of GDP peaked in the United States (and China, not to mention the world as a whole) just prior to the global economic downturn, and have started declining since. The decline has hastened since around 2012.
   Hartford depicted this as worrying for the freight transportation industry, a sign that global trade may have reached its inflection point.
   Investment analysts tend to look deep into the past for historical patterns, and far into the future to project what will come. That gives their perspective credibility, since it’s not based purely on short-term variables.
   If that’s the case, Hartford’s visuals and words should be concerning to U.S. carriers and logistics companies. The volume of cargo the United States imports from abroad has an indelible impact on domestic freight volumes. And global trade plateauing, or worse, receding, doesn’t bode well.
   Take, for example, another slide Hartford showed that the peaking of trade openness has also played a part in slower volume growth rates across all freight modes, international and domestic, the last decade.
   From 1993 to 2005, less-than-truckload volume rose at a compound annual growth rate (CAGR) of 3.5 percent. From 2005 through 2015, that rate shrunk to 0.4 percent. For truckload, CAGR between 1990 and 2005 was 4.4 percent, which dipped to 1.3 percent between 2005 and 2015. Ocean freight growth between those same periods dropped 65 percent, for context.
   Clearly, the drop-off in trade openness post the downturn is not all to blame for weak domestic truck volume growth. There is also clearly a huge swathe of truckload and LTL volume that is either unattached or only very indirectly attached to international freight. But Hartford said diminishing global trade, and more restrictive trade barriers, will contribute to weakening domestic volumes.
   “Expanding trade provided a multiplier effect to U.S. freight volumes,” he said. “Protectionism is important to understand in the context of aggregated freight growth.”
   At the conference, Hartford also expounded on worker displacement in light of current political sentiment.
   “The element of robotics and automation is scary,” he said. “I don’t think we want to go back to an agrarian economy, and we’ve always found ways to make displaced labor productive in other forms. There will be growing pains and dislocations on a short-term basis. Global trade is good, but it’s not even. I have faith that we will find new places, new applications for people in the workforce. Policy makers need to be better at finding places for those displaced.”
   Don Rataczak, an economist with Georgia State University who spoke on a panel with Hartford, said time and patience is the key.
   “Given enough time, we make it work,” he said. “But sometimes ‘enough time’ is a generation. If there’s not enough incentive to get those skills, you’re going to have a pool of unemployed people. In the past, we’ve always been able to provide some method of generating the skills. Education and training, and sometimes employers will have to spend more time with training. We adjust, as long as you don’t put serious impediments into place.
   “The key this time around is we’ve destroyed not only the jobs of middle class people, but also their wealth (the house). This time, the middle class couldn’t just move (to find work).”
   In the meantime, the good news for domestic freight, other speakers at the conference noted, is that the economy appears relatively healthy, and there is optimism about the new administration’s stance on safety regulations and tax reform.
   David Congdon, chief executive officer of the LTL carrier Old Dominion Freight Line, was bullish about 2017, saying that reduced regulatory burdens and the potential for corporate tax reform would buoy capacity and the general business environment in the United States.
   Another positive signal, according to Congdon: LTL carriers saw increased weight per shipment in the fourth quarter of 2016.
   “I’m cautiously optimistic for 2017,” he said.
   Those factors could well push the U.S. domestic freight industry toward solid growth this year and next. But be mindful of the impact of dampened global trade’s – it’s not insignificant.