The trucking outlook entering 2017 was more optimistic than it had been in the prior two years, but carriers still needed to prepare for economic disruption, use performance data, monitor regulatory uncertainty, and plan for new lease-accounting rules.
A strong dollar, excess capacity, and no growth in industrial production had made 2015 and 2016 difficult for transportation companies. Trends began to change in November 2016, creating renewed optimism among trucking owners.
Katz, Sapper & Miller's Transportation Services Group discussed those changes at its Feb. 7 Trucking Owners Business Roundtable in Indianapolis. The program covered the freight economy, methods for increasing company value, regulation and legislation, and lease accounting.
The Trucking Economy
Thom Albrecht of Sword & Sea Transport Advisors said the industry's most pressing question was when the slump would end. After the dour conditions of 2015 and 2016, he saw several reasons for a more positive outlook:
- Oil prices were recovering.
- History suggested the industrial slump was nearing its end.
- Wages were expected to improve.
- Commodity prices were stabilizing after two years of declines.
- Household debt had fallen.
- Lower tax rates and the return of foreign earnings could support corporate investment.
- Infrastructure spending could increase.
- Company inventories were strong.
- The regulatory environment appeared to be moving toward pragmatic relief.
- Tax rates could improve.
Albrecht noted that industrial production had never experienced a three-year slump. Its 0.8% growth in December 2016 was the highest rate in 25 months. He considered industrial production more important to trucking than gross domestic product and expected continued recovery to produce more freight and tighter capacity.
Other positive signs included strengthening copper prices, stabilizing grain prices, rising oil-rig counts, greater small-business optimism, and a housing recovery expected to grow from 5% in 2016 to 7%–10% in 2017. Consumers emerging from the seven-year credit restrictions following bankruptcy and the formation of new households also supported demand for housing and freight.
Reasons for Caution
The outlook was not entirely positive. Concerns included trade policies that could restrict growth, weaker exports caused by a strong dollar, higher fuel prices and interest rates, labor constraints, limited growth in the auto and aerospace sectors, and sluggish global trade.
Albrecht also urged carriers to prepare for disruption. Brokerage margins could be pressured, freight flows could change, and consumer preferences were shifting from gifts of goods to gifts of experiences. Online purchases of large items such as appliances and electronics were also altering distribution patterns.
Although early 2017 could still feel like 2016 to some fleets, Albrecht expected momentum to build. A combination of tighter capacity and fiscal stimulus could support a healthier market by 2018 and possibly as early as the third quarter of 2017.
Opportunities to Build Value
John Lyboldt and Chris Henry of the Truckload Carriers Association discussed how carriers could increase company value by improving profitability and making better use of their workforce.
Lyboldt encouraged owners to examine their own operations and identify practical opportunities for change. Henry demonstrated TCA's inGauge online performance benchmarking and project-management tool, which was designed to help owners turn data into action.
Launched in 2015, the program collected more than 125 metrics across finance, operations, maintenance, fuel, safety, and human resources. Its objectives were to:
- Create an intake program for future Best Practice Group members
- Educate motor carriers about expenses, reporting, profit, and related topics
- Modernize existing Best Practice Group reporting
- Improve the circulation of results to front-line managers
- Combine quantitative and qualitative information
The program also addressed the practical problems of gathering reliable data and determining whether comparisons with similar-size carriers were valid. More complete data supported stronger benchmarking and continuous improvement.
Legislative Forecasting
Shannon M. Cohen of Scopelitis, Garvin, Light, Hanson & Feary reviewed state and federal regulation under the new presidential administration.
She expected the electronic logging device rules to proceed as written. She also expected the hours-of-service restart to remain, although further changes were possible, and she did not anticipate a practical effect from driver-training initiatives.
Other matters were uncertain. Infrastructure spending, Twin 33-foot trailers, wage-and-hour preemption, joint employment, and the relationship between state and federal governments remained difficult to forecast.
The industry was also discussing autonomous vehicles, drones, emerging technology, and the long-term effect of the sharing economy on shipping volume.
Preparing for Lease Accounting Changes
Jason Miller of KSM's Transportation Services Group closed the program with an overview of current lease accounting, the new lease standard, its effect on trucking-company financial statements, and planning considerations.
The prior bright-line test for classifying capital and operating leases had produced inconsistent accounting and was considered broken. The new standard, scheduled to take effect for private companies in 2020, was intended to increase transparency and comparability.
Miller emphasized education and preparation. Trucking companies should inventory existing leases, understand their financial-statement impact, identify opportunities to restructure agreements, and reconsider the relative value of buying and leasing equipment.