Victory is an ongoing process in trucking
In the 1975 film “Rollerball,” the top spectator sport is an unbelievably violent version of roller derby. It’s 2018, and corporations literally run the world. They sponsor rollerball teams as a way to distract the masses and to show how individuals acting alone are doomed to failure. One particular rollerball athlete, Jonathan E. (played by James Caan), however, has become a major star – a situation that threatens the social order. The team’s corporate owner first tries to persuade Jonathan to retire, but eventually the corporations jointly settle on an extreme tactic: A special match that has no time limit and no substitutions. In other words, it’s a battle to the death – or at least dismemberment. The game ends only when everyone on one team has been neutralized.
Trucking is a lot like that. There is no permanent victory, and you can’t run out the clock. Perhaps the best you can do is luck into an exit strategy that maximizes your return, but how do you know when that opportunity comes? Besides, you spend a lifetime building a business that you or your parents or grandparents started from nothing. It’s difficult to walk away from such an intense emotional investment.
Certainly the past decade shows how success in trucking is a marathon, not a sprint. Following a recession, insurance crisis and terrorism shock early in the decade, the trucking industry generally enjoyed some great times for a couple of years. But things softened after the housing construction market peaked in 2006. By 2008, the U.S. economy was in a recession, inventories swelled relative to sales, and the financial system almost collapsed. Trucking suffered through one of its worst years ever in 2009, but carriers generally saw at least some modest improvement in 2010.
Heading into 2011, expectations were high for industry profitability due to an anticipated combination of a rebounding economy, reduced capacity and significant barriers to entry. For-hire trucking companies cut about 180,000 payroll employees – most of whom are drivers – between the beginning of the downturn and today, so clearly capacity is down substantially. And owing to the fact that the new emissions regulations coincided with the industry downturn, there’s no ready supply of good late-model used trucks.
So the supply side indeed is tight, and demand apparently was strong during the first few months of this year. Although the construction market remains troubled, manufacturing has saved the day – so far. But there are signs of manufacturing growth slowing, or potentially worse. For example, the closely watched Institute of Supply Management index of manufacturing activity known as the PMI retreated sharply in May. Manufacturing still is growing, according to the PMI, but at a much slower rate. Meanwhile, industrial production is flat, and factory orders are down. Throw in anemic job growth and failure of the housing market to rebound, and some people are beginning to talk worriedly about a dreaded “double-dip” recession.
There are other threats to the long-predicted “golden age” of trucking. For example, bank reserves in May topped $1.5 trillion, up from about a consistent $45 billion before the near-collapse of the financial system. Other than the fact that banks aren’t loaning money, these humongous reserves aren’t necessarily a problem if they are just sitting there. But once banks draw down those reserves – due, presumably, to greater confidence in the economy – the increased supply of money in circulation likely will be inflationary.
In other words, the natural consequence of a solid economic recovery could be much higher inflation, which presents different challenges for businesses. Cash long has been king in trucking, but in periods of high inflation, too much cash can be a big problem. And carriers will need to watch interest rates closely, perhaps expediting facilities investments, to lock in low rates.
It might not make you happy, but it’s true: Financial success is an ongoing process, not a final result.
– Avery Vise is executive director, trucking research and analysis for Randall-Reilly and senior editor, industry analysis for Commercial Carrier Journal. E-mail firstname.lastname@example.org.
* Trucking companies saw a noticeable slowdown in recent freight demand in May compared to April, although that was off a brisk pace, according to the latest TruckGauge MarketPulse report. The report, based on data and comments from 80 senior executives, is available to subscribers of TruckGauge (www.truckgauge.com).
* DOT’s Freight Transportation Services Index dipped 1.0 percent in April from March.
* The Ceridian-UCLA Pulse of Commerce Index fell 0.9 percent on a seasonally and workday adjusted basis in May after falling 0.5 percent in April. The index declined in four of the first five months of 2011 and in eight of the past 12 months.
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