With his erudite manner, stylish bow ties, and dual degrees from Penn and Harvard, one might think Noël Perry would be ill-suited to work as an economist in the earthy world of transportation and logistics.

One would be mistaken.

Perry's passionate interest in the industry took root 40 years ago when he was working on a loading dock. That passion has carried him up the ranks at companies like CSX Corp., Schneider National, and Cummins Engine Co. It propelled him to start his own consultancy, Transport Fundamentals, and to be named partner at fellow consultancy FTR Associates.

Along the way, Perry has built a reputation for delivering blunt, no-nonsense forecasts backed by a deep knowledge of all the transport modes and an understanding of the underlying data. Perry spoke recently with DC Velocity Senior Editor Mark Solomon about the outlook for trucking, how soon the driver shortage will hit critical mass, and when he expects the next downturn to occur.

Q: How has your economics training informed your work in an industry where there are so few economists plying their trade?

A: An economist looks for the underlying structure that guides human behavior. That's very helpful in understanding why things happen and how they might change in the future. An economist is not just looking at what happened yesterday.

There aren't many of us in transport because this is an industry that is primarily worried about what happened yesterday—and today. It has very little money and time to spare worrying about next week. You have to be very nimble and wear many hats to survive as a researcher in transportation. It's worth it, though, because the industry is endlessly fascinating.

Q: So quantify how well, or not so well, the trucking industry is doing today?

A: The industry is smaller than we would like, still well below its 2006 peak. But it is growing at a good clip, over 4 percent for this year. This is not a time for complaining. It is a time for grasping opportunities.

Q: The impact of the driver shortage has been discussed in more ways than was thought possible. Put in numbers what the shortfall is today, what it will look like two or three years from now, and at what point it will become a crisis for the supply chain.

A: Because fleets always add capacity after the fact, we have a shortage of about 100,000 drivers right now. That's on a population of about 2.5 million full-time-equivalent drivers. Because the developing wave of new safety regulations will require the addition of some 400,000 drivers over the next five years, I fully expect the fleets to stay behind in their hiring.

The peak shortage will be in the 250,000 range by late 2013. That should be enough to create sporadic supply chain failures during peak seasons, but not enough to create widespread failures.

The issue is that the shortage may persist for three to four years, keeping the industry under stress for an unprecedentedly long time. Such stress could kick off significant change in driver pay and in shipper-carrier relationships.

Q: If we operate under the assumption that carriers now hold the leverage in terms of pricing, how long do you expect this cycle to run before the pendulum swings back to shippers?

A: Given the regulatory pressure, the cycle will run until the next downturn. My guess is that downturn will occur in 2015.

Q: You have strongly advocated an increase in truck size and weight limits as the best way for shippers and carriers to improve productivity in a world of scarcer resources. Yet the trucking industry abandoned any legislative effort to get such an increase included in the House version of transport funding legislation. Is this an absence of will on the truckers' part, or an absence of effort on the part of shippers to push the issue?

A: This is clearly a shipper issue. The carriers have little to gain from a change. That said, there is clearly not enough pain from shortages yet to overcome the very strong public resistance to heavier trucks. No smart lobbyist would dull his pick on this issue in 2012. We will need some kind of crisis to break that resistance. That's unfortunate because the facts overwhelmingly support the use of larger trucks.

Q: Railroads are making a big effort to build a domestic intermodal presence, especially on short to intermediate hauls that were once the domain of truckers. Does that pose a threat to truckload carriers?

A: First off, let's separate the short- and intermediate-haul segments. Intermodal is earning a modest gain in share in the intermediate-haul (900- to 1,200-mile) segment. I estimate that the gains are about half done. So far, that translates to about 500,000 loads, a nice 10-percent gain in domestic intermodal volume. The railroads are rightfully proud of this accomplishment—principally built on improved reliability. Keep in mind, however, that the equivalent truckload market is sized at more than 50 million loads. It is the rare trucker that has noticed anything.

As for the short-haul segment, little is happening there because intermodal costs are still too high to compete effectively much below 1,000-mile length of hauls. The cost burden of ramp operations is simply too great a hurdle to overcome—at least until some serious innovation occurs. Since Norfolk Southern is the only railroad that is committing major capital to this segment, I don't see much happening this decade.

Q: In our pages, you were quoted as saying that in the 75-plus years of modern-day trucking, capacity problems have been virtually non-existent, but that for the first time in memory the issue of "capacity assurance" has taken center stage. Will capacity issues be a multiyear worry for the supply chain?

A: This is the issue of the next 10 to 20 years. The hyper competition of a very mature industry has made holding any capacity buffer a risky proposition. At one time, growth and cost reductions would erase any mistakes in six months. Not any more. Fleet managers are learning to manage for growth in margin rather than growth in revenue.

Consider that we have a 100,000-unit shortage in today's market with little or no driver pay inflation. Nobody is trolling aggressively for drivers. I conclude that the fleets are content to take the benefit of scarcity purely in price, at least until things get much tighter. Given the troubling hiring demographics of the next decade, this situation will only worsen—except late in upturns when the fleets finally add capacity, and early in downturns when demand falters faster than the fleets shed capacity. Those periods account for two years out of the current seven-year economic cycle. So most of the time we will have shortages.

Note that this issue will be particularly acute in those segments where customers need volume flexibility: one load this week, 10 loads the next. Most of the fleets are applying their precious capacity to moves that have the volumes that keep the trucks full. If you don't believe that, take a look at the big swings in spot pricing during this upturn.