A year ago today, stunned and exhausted attendees at the JOC Inland Distribution conference in Memphis straggled in to sit through an early morning session, trying to process what had happened at the polls just hours earlier. They would leave town later that day to close the books on a mostly forgettable year, one which had been punctuated by another economic leg down in the fall due to uncertainty over an election outcome that few had anticipated.
Much has changed in 12 months. A new kind of leader occupies the Oval Office. The conference's venue has since moved from Memphis, Tenn., to Atlanta. More significantly for the freight crowd, attendees broke camp late yesterday with a different outlook on their world. Freight volumes and rates are busting out all over. Shipper-carrier discussions are focused more on securing capacity than on pricing. Transport assets are now in big-time demand.
Even the humble domestic trailer on flatcar, written off several years ago as an anachronism in a containerized world, has come roaring back to life. The equipment is experiencing double-digit traffic gains due to a shortage of containers in the U.S. trades and concerns that shippers and intermodal marketing companies will need a safety valve in the event truck capacity is inadequate on key lanes.
Transport providers, in the words of Lee Klaskow, a senior analyst, transport and logistics, for Bloomberg Intelligence, are in "an extremely constructive place where we haven't been for some time." Klaskow projects 2018 average revenue for the $700 billion truckload market to rise 8.2 percent from 2017 levels. For the much smaller less-than-truckload (LTL) market, revenue will rise 6.1 percent, according to Klaskow's projections.
The railroads are in the same boat. Intermodal demand in 2017 at Montreal-based rail giant Canadian National Railway Co. has, in some cases, been twice what the railroad projected, according to Andrew Fuller, CN's assistant vice president, domestic intermodal. A top priority for 2018 is to quickly bring on new capacity across its network to meet traffic flows that aren't expected to reverse, Fuller said.
Of course, transport can be a zero-sum game. One group's good fortune is another's misfortune. Shippers, freight brokers, and third-party logistics (3PL) providers that have lived large on the backs of abundant truck capacity and scorched-earth carrier pricing are about to experience a full-fledged cycle turn, experts said at the conference. In the LTL category, where healthy tariff rate increases have been the norm for the past few years, 2018 is likely to bring "a little bit of sticker shock" for shippers, according to Darren Hawkins, president of YRC Freight, the long-haul unit of Overland Park, Kan.-based LTL carrier YRC Worldwide, Inc.
Despite that, most of YRC's current conversations with shippers have centered on capacity assurance instead of the cost of the truck, Hawkins said.
The more fragmented truckload sector faces its own volatility next year. After a sluggish 2016, non-contract, or spot, rates have been strong for all of 2017. As more trucks have migrated to the spot market, shippers and brokers find themselves bereft of their high-rated contract carriers, and in many cases have been forced to the spot market after their routing guides failed them.
Truckload contract rates, which lag spot-rate trends by three to six months, have begun to firm following a mostly flat year. How high contract rates go will be determined by how the spot market acts in January and February, both seasonally slow periods, experts said. Firm spot rates will pave the way for carriers to have the upper hand in contract negotiations, they said.
The U.S. economy is still percolating, drivers at large fleets are in short supply, thousands of available drivers are not where the loads are, and the Dec. 18 deadline to comply with the electronic logging device (ELD) mandate—which in the near-term will cut driver productivity by ending illegal extra-hours driving—is looming. In that scenario, experts opined, the table is being set for the toughest environment for truckload users since 2004, when the last federal hours-of-service regulations kicked in and the economy emerged from uncertainty over the Iraq war and kicked into high gear.
Pressure on capacity could be eased should the U.S. economy, which is finishing its eighth year of recovery, turn down again. However, no one at the conference spoke of a downturn during 2018. If anything, with U.S. consumers in generally good financial shape and business investment projected to accelerate, the economy may be kicking into even higher gear.
The economy, said Klaskow of Bloomberg, "still has legs."
This story was updated Nov. 10, 2017 at 12: 12 p.m. EST.