Economic growth should accelerate and impending regulations should give carriers the ability to increase rates next year, according to speakers at Newcom\u2019s Surface Transportation Summit last week.<\/p>\n
Carlos Gomes, senior economist with Scotiabank, predicted global economic activity will strengthen in 2017, as will GDP growth here in Canada.<\/p>\n
\u201cCanada and the US will see increased growth in 2017,\u201d Gomes said. \u201cIt will be a little bit stronger than what we\u2019ve seen.\u201d<\/p>\n
From Truck News<\/em>:<\/p>\n [otaTextBox padding=\u00a0\u00bb20″]<\/p>\n Gomes said consumer spending is helping to offset a dearth of business investment. However, with an inventory cycle showing signs of recovery and oil prices returning to levels where investment is viable, Gomes said the overall economy and business investment should strengthen.<\/p>\n \u201cAs we move into 2017 we will start to see business investment in the oilpatch begin to improve modestly,\u201d he said.<\/p>\n In the US, Gomes said the job picture is \u201cvery healthy\u201d with growth of 2% year-over-year. And consumers there are spending less of their money on energy and debt \u2013 a record low of 13.5% of their income, compared to 19% in 2007.<\/p>\n \u201cThis is one of the reasons we think the US will do quite well going forward,\u201d Gomes said.<\/p>\n In Canada, manufacturing levels are increasing, but that\u2019s been mostly driven by the auto sector, Gomes explained.<\/p>\n \u201cOutside the automotive sector, we have not seen much improvement,\u201d he explained. \u201cOur expectation is, as we see demand strengthen in the US we will see a broadening out of manufacturing activity.\u201d<\/p>\n Gomes is also encouraged that oil supply and demand are coming in line, which should support oil prices at about $55 per barrel next year.<\/p>\n \u201cThis will help Alberta and Saskatchewan stabilize and move from negative growth to seeing some small increases next year,\u201d he said.<\/p>\n John Larkin, managing director and head of research with Stifel Financial Group, gave Surface Transportation Summit attendees an economic outlook specific to transportation. Larkin noted spot market rates have fallen 10-20% over the past year, \u201cto the point where many small carriers who participate in the spot market are really getting hammered and having trouble making truck payments.\u201d<\/p>\n Contract rates began coming under pressure earlier this year.<\/p>\n \u201cAnyone who is telling you their rates are up this year is probably telling you a fib,\u201d Larkin suggested.<\/p>\n But that could be short-lived.<\/p>\n \u201cGoing forward, we think with all the regulations coming down the pipeline, we will see a tightening of supply and demand as 2017 develops and by mid-2017 we should be back into an up-cycle on pricing, provided the economy continues to click along at at least 1.5-2%,\u201d Larkin predicted.<\/p>\n One big driver will be the mandate for carriers to use electronic logging devices (ELDs) to manage driver hours-of-service in the US, beginning in December 2017. Larkin said this could remove 3-5% of trucks from the road.<\/p>\n \u201cIt\u2019s top of mind for everybody that 50% of the industry has ELDs, the other 50% does not. They\u2019re still using manual logs. What you find is many of those companies using manual logs are in the 600-mile length of haul range, which you can\u2019t do with a solo driver,\u201d Larkin explained. \u201cWhen they convert over to ELDs their productivity will be down 6-10%. So, 50% of the industry down 6-10% implies 3-5% of capacity will come out of the industry. That assumes all the small carriers will be able to survive. We think quite a few will exit the industry so it could be worse than 3-5% when all is said and done and the dust settles.\u201d<\/p>\n Larkin said there are \u201cenlightened shippers\u201d who see this coming and are working to lock in rates, and \u201cNeanderthals\u201d who are focused solely on price. Another factor that could drive up rates is the inventory glut is showing signs of easing. \u201cThat inventory glut is being drawn down somewhat,\u201d he said.<\/p>\n As volumes increase, a lack of quality drivers will limit the industry\u2019s ability to add capacity, Larkin noted.<\/p>\n \u201cDrivers are still very difficult to find,\u201d he said. And he offered little hope that drivers will start flocking to the industry. \u201cIt\u2019s tough to find those people who are willing to sacrifice their lifestyle to be out on the road.\u201d<\/p>\n In order to micromanage their cost structures, Larkin said fleets have removed any freedom and autonomy from a line-haul driver\u2019s job. Their carriers tell them how fast to drive, which route to take, where to fuel up, how much fuel to put in the tank and even when to take their breaks.<\/p>\n \u201cThey are told what to do every minute of the day while living in a little metal box hurtling down the highway at 63 mph,\u201d he said.<\/p>\n Larkin predicted that between the second quarter of 2017 and Q2 2018, there will be a return to the environment seen in 2014, when there was more freight to move than there were trucks to move it, \u201cand the spot market will go from being godawful to being quite attractive.\u201d<\/p>\n Asked what smart carriers are doing to succeed in the future, Larkin said they\u2019re diversifying.<\/p>\n \u201cDiversify across a range of related services so you can offer your customer asset-based truckload, intermodal, dedicated fleet and truck brokerage to handle the peaks in volumes at the end of the month or quarter,\u201d he suggested. \u201cThat seems to be resonating with shippers who like to purchase a lot of services from the same core carrier.\u201d<\/p>\n He also suggested collecting and analyzing data so that troubling trends can be identified and corrected early.<\/p>\n [\/otaTextBox]<\/p>\n","protected":false},"excerpt":{"rendered":" Economic growth should accelerate and impending regulations should give carriers the ability to increase rates next year, according to speakers at Newcom\u2019s Surface Transportation Summit last week. 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