Despite consumers pocketing instead of spending the savings they are enjoying from low gas prices, 2015 is shaping up to be a relatively strong year for freight demand.
That’s what three top fleet executives told attendees at a new town-hall style event called CCJ Market Movers, held Thursday, Aug. 27, during the Great American Trucking Show in Dallas. CNBC Reporter Morgan Brennan and Avondale Partners’ Donald Broughton moderated the event.
Demand is strongest in the discount retail, ecommerce and home improvement sectors, the panelists said. “From our standpoint, ecommerce has been exploding and I don’t know where the end is,” said David Parker, Covenant Transportation Group chairman. “Amazon started it and now everyone wants a piece of the pie.” Parker also cited expedited (air freight, LTL, consolidators), organic foods, automotive and housing as very strong drivers of freight. “Those have all led the way for us,” he said.
Parker and fellow panelists, Derek Leathers, president and COO of Werner Enterprises and Richard Stocking, president and COO of Swift, also cited growth in business with Mexico. “We have a franchise in Mexico,” Leathers said. “It’s a big part of our business and we’re very bullish on it going forward.” Leathers noted an uptick in produce exports from Mexico in response to the ongoing drought in California, but said that getting enough trailers down there to keep up with demand could require more deadhead. Stocking agreed saying that northbound freight out of Mexico “has put pressure on our team to stay in balance,” which can add a lot of cost, he said.
Compared to 2014 when heavy storms caused “strong, extremely erratic demand,” 2015 is more of a “normal strong year,” said Derek Leathers, president and COO of Werner. He noted a shift in the U.S. economy, in which gross domestic product is no longer a good indicator of freight demand. Today’s economy is driven more by services and government spending than ever before. “That stuff doesn’t go on trailers,” he said. Reduced domestic manufacturing has also affected U.S. freight. “We used to move raw materials and then finished goods. We move retail goods once now, maybe twice when we move them from China,” he said.
Turning to prospects for intermodal, panelists said disruptions caused by a combination of last year’s winter storms and labor disputes at West Coast ports pushed many customers from rail to truck. After the storms, the railroads “took months to get back to normalized service levels,” Leathers said. “Fuel being low made it easier for shippers to migrate back to trucks,” he said. The question is: “Will that stick?” he asked.
“Our rail business is growing and will continue to,” Stocking said. “Switching modes is expensive. Freight will find its most optimal and cost effective mode. If you can trust that it will get there and there’s time in your supply chain, people will look at intermodal,” despite being burned by last year’s disruptions, he said.
“We believe at the end of the day freight will find it’s most efficient path,” Leathers said. “We have to be mode neutral and sell [customers] the best option for them.” If we do that “we will be repaid with more business,” he said.
All three fleet executives were upbeat about prospects for a strong 4th quarter and said their customers are concerned about capacity, especially as consumers start to spend the estimated $1,500 in savings from low fuel prices toward the end of the year. “All but one customer I visited with was excited about Q4,” Stocking said. “They want partnerships. They want core carriers that can innovate.”