ATA’s Costello offers up detailed look at the state of the freight economy at RILA

One of the best presentations at the RILA Link 2019 Retail Supply Chain Conference was offered up by American Trucking Associations (ATA) Chief Economist Bob Costello who did not disappoint in laying out the road ahead for the freight economy and trucking, providing a deep dive on what we may expect.

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Last week’s offered up various takeaways for all supply chain, logistics and freight transportation stakeholders, to be sure.

Some of the event’s key themes focused on things like the ongoing emergence of last-mile logistics, and key technologies such as AI, TMS, and digital freight matching, among other themes.

But one of the best presentations was offered up by Chief Economist , a well-known authority on all things freight economy-related, for certain. Costello served as a moderator for a session, entitled “Caution Dangerous Curves Ahead: Domestic Transportation Outlook.” And he did not disappoint in laying out the road ahead for the freight economy and trucking, providing a deep dive on what we may expect.    

The possibility of a future recession, explained Costello, is not a matter of if but when.

“Are we heading back in a recession or are we slowing down or what I would call back to trend?” Costello said to an audience of retail shippers, freight transportation carriers and 3PLs. “We are back to trend, not in a recession, but are we going to have a recession? Of course, we are going to have a recession…but the way I see it, the odds of that really do not pick up until late 2020 or, most likely, a 2021 event.”

While he said there will, in fact, be a future recession, it came with the caveat that people need to set their expectations differently for 2019 when compared to a very good 2018, in that the economy will grow, albeit at a slower rate.

That was made clear in GDP estimates Costello provided, with 2019 GDP pegged to hit 2.4%, 1.6%, 2.5%, and 2.1%, respectively for the first, second, third, and fourth quarters.

While these may numbers may look somewhat dim when placed against what can be viewed as a robust 2018, Costello made it clear that key economic fundamentals remain firmly intact.

These fundamentals include things like still strong consumer activity, as well as a solid job market.

Addressing the latter, he said that there are currently more job openings than there are unemployed people, which “does not usually happen.” What’s more, he raised the question of what happens when full employment is reached, as it relates to wages. And the short answer was that wages go up, which obviously continues to support economic growth and freight activity.

“Last year, we were at the height of the cycle with wage growth of 3% and consumers continuing to spend on goods…it will likely slow down a bit but the fundamentals remain good,” he said.

On the other end, though, are housing starts, which Costello labeled a disappointment, even though there 2018 represented the best year for housing starts since 2007, with recent months showing a flatness in the market. How so? Well, the December 2018 new housing starts numbers, he said, were the weakest going back to September 2016. Costello attributed the recent slump to a combination of some supply issues, coupled with mortgage rates rising.

Housing issues, at the moment, aside, Costello said factory output remains strong, up 2% in 2018, with a bullish future outlook.

“This all leads to a growing economy and a growing trucking sector, too, but not quite as strong as 2018,” explained Costello.

As for the prospects of U.S.-China trade tension having a negative impact on 2019 economic growth, he said there are some threats to international trade policy but things appear to be heading in the right direction, with the recent delay of planned tariffs that were set to take effect earlier this month.

And, as previously noted, ongoing economic expansion at lower rates of GDP growth, is considered more sustainable, he said.

Costello also touched upon things like driver turnover, as it relates to the ongoing challenges motor carriers have been up against. One of the key components related to that, of course, is driver pay, which Costello observed has lagged for a long time.

“If you look at what driver pay was in 1980 compared to now in real currency terms, it was higher then…so we still have a lot of catching up to do,” he said.

If that does not put things into perspective, when it comes to the need to up driver pay, I am not sure what else will, to be honest.  But there are signs of improvement with large turnover rates falling 20% over the second half of 2018, as per ATA data, with Costello pointing to pay increases as the reason for that reduction.

But that situation could change, even if the next recession is mild, he said, as it could lead to a fair amount of carriers exiting the business, as it will be difficult for them to keep those pay increases intact.

While there are still certainly challenges that remain and are not going away, Costello’s comments drive home the fact that there is much to be encouraged about, when it comes to the economy and future freight growth. Here is to hoping things remain on that path.

About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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Article Topics

ATA · Economy · freight economy · RILA · Trucking · All Topics
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