U.S. shipping volume, revenue to rise as ‘monumental deadline’ looms

The trucking industry can expect revenue and freight volume to rise while the driver shortage continues and carriers adjust to electronic logs.

The industry is “facing a monumental deadline,” said Shannon Newton, president of the Arkansas Trucking Association. On Dec. 18, 2017, the ELD mandate kicks in, requiring drivers who currently track hours of service with paper logs to switch to electronic logs.

The mandate is the top issue based on a survey of industry executives and drivers, said Rebecca Brewster, president and CEO of American Transportation Research Institute. Brewster discussed the survey in a panel discussion on the mandate hosted by a publication of American Trucking Associations. Nationwide, 40% of trucks are compliant with the mandate, Newton said. Large carriers adapted to the technology three or four years ago.

Trucking/transportation analyst Brad Delco of Little-Rock based Stephens Inc. expects the mandate to go into effect as planned despite a petition to the U.S. 7th Circuit Court of Appeals to reconsider the mandate. The Owner-Operator Independent Drivers Association again requested the court to rehear the case even though it previously denied OOIDA’s request.

The ELD mandate was one of three catalysts for the rise in industry stock prices since the election, according to a Stephens industry note, “Making Trucking Great Again.” Shares have traded at 6% above their “historical average, but in our ‘Trumped Up’ case, stocks would be trading” at 5.2% below average. The ‘Trumped Up’ case, taking place over the next 12 months, is defined as 2% gross domestic product growth acceleration and a 20% corporate tax rate.

“With these catalysts having varying degrees of uncertainty, (industry) price targets, ratings and estimates are all under review,” the Stephens’ analyst wrote in the investor note.

While the election of Donald Trump has been positive for investors, transportation analyst Benjamin Hartford of Robert W. Baird & Co. has mixed views on a Trump administration. Tax and regulatory reform and his infrastructure plans look good for the industry, but trade policy changes could lead to industry “headwinds.” Newton shared similar views but was also concerned about the driver shortage and the rate at which drivers are reaching retirement age. In Arkansas, between 3,000 and 3,500 drivers could find jobs “today.”

Technology changes, especially vehicle automation, will continue to impact the industry in 2017.

“We’re really not that far away from level 3 autonomous vehicles,” Newton said.

At level 3, technology takes full control of the vehicle, except under some circumstances, such as navigating through a construction zone. Technology like this is already being used in the airline industry with autopilot, she said. But how quickly the technology comes into play will depend on people’s comfort level with it and the legislation needed to regulate it. States need more uniform legislation to regulate the technology and Newton has been involved in the process to develop state legislation for autonomous vehicles.

TONNAGE IMPROVES, LOAD NUMBERS FALL
ATA chief economist Bob Costello foresees improvement in the freight market as “retail sales are good, the housing market is solid and the inventory overhang throughout the supply chain is coming down, all of which will help support truck freight volumes in 2017.”

Truck tonnage, which includes truckload, less-than-truckload and private carriers, is expected to grow 2.3% to 10.801 billion tons in 2017, from 10.554 billion tons last year, according to ATA’s U.S. Freight Transportation Forecast to 2027. Trucking revenue will rise to $781.1 billion, from $738.9 billion, accounting for 81.5% of revenue generated by all freight modes. The share of total tonnage hauled by trucks is expected to remain flat at 70.9% in 2017. Rail carload transportation, with the second highest share, will also remain flat at 11.8%, followed by pipeline at 10.4%.

Broken into segments, truckload volume is projected grow 2.2% to 5.313 billion tons, less-than-truckload volume will rise 2.8% to 156.4 million tons and private-carrier volume will increase 2.3% to 5.33 billion tons, according to ATA’s forecast. Truckload revenue will rise 5.6% to $365.9 billion, less-than-truckload revenue will jump 6.4% to $60.9 billion and private-carrier revenue will increase 5.6% to $354.3 billion.

While tonnage has increased, the number of loads hauled by truck has fallen, wrote Donald Broughton, chief market strategist and senior transportation analyst with Avondale Partners, who provides economic analysis for the Cass Freight Index.

“We are becoming more focused on the number of loads moved by truck and less focused on the number of tons moved by truck,” Broughton wrote in the most recent index report. “The data coming out of the trucking industry has been both volatile and uninspiring.”