LM Viewpoint 2017: A few near-certainties

Following LM tradition, we start off the New Year with our annual “Rate Outlook” cover story and subsequent Webcast 

By Mike Levans · January 10, 2017

This marks the 12th year that we’ve produced this cover story and Web event and is the 7th year that executive editor Patrick Burnson has been our master of ceremonies for both. He has again neatly summarized our panel’s forecasts in print (page 28) and will moderate a discussion with these keen minds in our “2017 Rate Outlook Webcast” on Thurs. Jan. 26—our best attended Webcast of the publishing year.

In an attempt to give U.S. shippers a more extensive view of what’s coming down the pike, Burnson kicks off with a global perspective and then works his way closer to home, explaining how the current situation in distant markets may have a ripple effect on our rates, capacity levels and our overall supply chain strategy.

“It goes without saying that there was a general air of uncertainty hanging over Europe following the Brexit vote,” says Burnson. “And while the analysts I spoke with felt that Brexit was the real game changer, along came the U.S. Presidential election results.”

The general consensus among our esteemed panel this year is that with the forthcoming Trump presidency, we may see the world order wobble a bit, and that mere possibility is casting a cloud of ambiguity over any predictions we may make here in his first month in office. However, our panel was able to offer a few “near-certainties” that should give U.S. shippers a foundation for some longer-term planning.

For instance, the economists at IHS Markit say real global GDP growth is projected to increase 2.8% in 2016—an improvement over 2015. That team also sees U.S. expansion continuing in 2017 and even “becoming more balanced as capital spending recovers and inventory drawdown ends.”

On the energy front, Derik Andreoli, Ph.D., senior analyst at Mercator International and LM’s “Oil and Fuel” columnist, tells Burnson: “Despite OPEC’s recent agreement to cut production by 1.2 million barrels per day, it’s unlikely that oil prices will rise to any significant degree over the first half of 2017.”

This forecast of continued stable fuel prices should bring some comfort to U.S. shippers, and certainly helps to alleviate at least one concern for trucking executives—a group that had enough to worry about in 2016. While longhaul carriers struggled last year with weak consumer demand, bloated inventories and sluggish industrial activity, their fortunes may be about to turn.

“Another area we can report with some certainly is that a combination of accelerating economic growth, ongoing fleet downsizing and continued regulation implementation will almost certainly find tightening supply and demand across trucking,” says Burnson.

According to Stifel Nicolaus’ John Larkin, one of our top trucking analysts, these pressures will be enough for truckers to begin the process of restoring rates as the pendulum begins to swing back toward the carrier side. “We might see evidence of the tight supply/demand dynamic flexing its muscles as early as the second quarter volume peak,” Larkin tells Burnson. “Absent price increases, capacity might well be disproportionately allocated to customers that have already provided relief with the much-needed rate hikes.”

So, before we get too giddy at the prospect of a $1 trillion infrastructure investment or become anxious over a suggested re-writing of NAFTA, shippers should take a quick litmus test to determine the state of their carrier relationships because the majority of capacity in 2017 will be going to shippers that understand the concept of mutual benefit.