While it was not a huge surprise that 2019 was unable to maintain the economic and freight volume momentum seen in 2018, the outlook for 2020 is shaping up to be closer to the latter. That was the word from speakers at this week’s SMC3 JumpStart 2020 conference in Atlanta.
Dr. Jeffrey Rosenweig, Associate Professor of Finance; Director, The Robson Program for Business, Public Policy, and Government, at Emory University, said in a presentation that when looking at the United States economy, annual GDP output hovered around 2.5% during the Presidential administration’s led by George W. Bush and Barack Obama, which have bee followed by some accelerations, at times, during Donald Trump’s time in office and were largely spurred on by tax cuts.
But that does not come close to telling the full story, he said.
“The current forecast is that [the economy] will still grow, nobody is forecasting a recession just yet,” he said. “But U.S. GDP may slow down to under 2%.”
While retail sales and consumer confidence remain strong, Rosenweig said that manufacturing, a sector that, in some ways, is viewed as a proxy for freight activity, may already be falling into recession in the U.S. and in other major global economies, too.
“It is typical that a country like ours leads the world in technology, technological process…and the same amount of workers can produce more each year as technology advances,” he said. “As the machinery and robots we are using increasingly embodies machine learning, where they learn as they go, then we will get to a world of artificial intelligence, self-driving trucks, as well as robots that are more flexible to change what they are doing maybe on assembly lines.”
Rosenweig also touched upon the impact of the Coronavirus on the global economy, which has rattled markets and resulted in declines in airline share prices, with China-based airlines reducing capacity to main land China through March.
Ben Hartford, transportation equity research for Robert W. Baird & Co., explained that looking back at 2019 featured weak volume trends elevated inventories, and excess supply, which all came together to plague industry fundamentals.
“We do see evidence that this current freight cycle should bottom during 2020,” he said. “It is going to be a tough first half of the year. I don’t think trends have bottomed yet…when we talk about trends, it is about growth trends being less bad and improving as we finish out the year.”
In 2019, Hartford said that freight volume growth deteriorated across multiple modes, with rail carloads as low as levels seen during the 2015-2016 trough, especially for industrial and intermodal loadings. And it was also the same for LTL weight-per-shipment throughout the year, and airfreight and ocean volumes, too, up against tough annual comparisons to 2018. Elevated inventories impacted by weak industrial trends also played a role as well, he said.
“We are looking at uncertainty everyday,” he noted. “When you contract, there are a lot of contradictions in the market. There are a lot of similarities between now and the late 1990s, with weak freight trends and industrial trends and equity markets less muted. Changing trade and fiscal policies and political rhetoric stand out as similar comparisons to back then. What is different now is the limitless amount of data we have at our fingertips….makes things now more of a matter of perspective in that people can find anything they want to justify any outlandish statement they want to make. It creates a lot of noise and that noise and business uncertainty can plague future growth and from a business owner or consumer standpoint, it does have a tendency to restrict activity for capital budgets and consumer confidence weakens growth.”
With freight growth rates expected to bottom in 2020 and a tough first half of the year expected and a pending bid season approaching, less bad growth rates are in the forecast for the back half of 2020, with the caveat that industrial activity will play a key role in whether that plays out or not, Hartford reiterated.
From a supply standpoint, Hartford said truckload supply is expected to continue to leave the market, coupled with stabilizing demand supply reduction is expected to support load factors, utilization rates, and help support pricing growth through 2020.
“Consumer demand remains solid, and industrial activity is showing some signs of bottoming,” he said. “The reality is it is a long cycle, a slow growth cycle. The reality is economic cycles don’t die of old age, they tend to be killed by sharp spikes in energy prices or inversions in the yield curve. We are near all-time cycle highs for consumer confidence, though. Consumer confidence tends to be the last to give up the ghost immediately before a recession. What triggers that are the sharp spikes in energy prices.”
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