2015 Logistics & Transportation Industry Forecast
John Wagner's latest article explores some of the critical factors to watch for this year; and overviews how they might affect the logistics and transportation landscapes.
As we begin 2015 it looks like the economy will keep chugging along at the hot pace we saw in the third and four quarters of 2014. There is some uncertainty due to international economic weakness that tempers this optimism. Today we’ll explore some of the critical factors to watch for this year and see how they might affect the logistics and transportation landscapes. Let’s look at logistics first.
Gas PumpThe drop in the price of oil is a boon for consumers as gas sells for about two bucks a gallon. The good news about oil prices is the amount of extra cash this puts into the hands of consumers to fuel a continued U.S. economic recovery. The bad news is that many states’ economic recoveries have been tied to the oil boom. Oil-related jobs, economic development and oil taxes have propelled growth in states from the Dakotas down to Texas. The drop in oil prices will negatively affect oil development and make it less attractive to bring the oil out of the ground.
Logistics impact- Good news for retailers as more merchandise flows through the supply chain and carriers have more freight to haul. Rail carriers moving oil and oil fields materials such as fracking sand will find less to move as wells are mothballed due to the price of oil falling below the cost of extracting it. If oil prices move up again, this pendulum could swing the other way.
Value of the U.S. Dollar
The dollar will remain strong against other currencies as Europe and Asia work to get economies back on track. Companies will find that exports suffer as the strong U.S. dollar makes their products or commodities more expensive due to the widening gap in currency valuation. Imports will rise as Americans spend those valuable dollars.
Logistics impact – Intermodal rail will continue to grow and put pressure on an already crowded rail system. Transloading at the ports and trucking will continue to face high demand, making it even harder to move products through U.S. ports as capacity is constrained.
Despite gridlock and a large number of regulatory changes, the economy has recovered. I expect to see the Republicans flex their newfound congressional control muscle by pushing back on the president. Because they will need to demonstrate to the public that they can govern, I expect to see some cooperation take place, but there will also be plenty of pressure to roll back some of the regulatory shackles that have been placed on the economy.
Logistics impact –The rollback in the hours-of-service restart provision is a good example, allowing truckload carriers to get a little more productivity out of their driver pool. Look for Congress to push back on the pro-union decisions coming out of the National Labor Relations Board (NLRB), such as the adoption of micro-unions, faster elections (so-called “ambush” elections), and use of company email systems for organizing. While Congress has little control over the NLRB, they do control funding so it should be an interesting fight.
Our infrastructure in the U.S. is in terrible shape, with our highways and bridges unable to handle the growth in population and commerce. Likewise, our airports and ocean ports are not prepared for growth.
Logistics Impact – Look for Congress and the president to try to find some common ground to find the trillions of dollars it will take to repair and improve infrastructure, although they will fight over how to fund it. Privatization and fuel tax increases will both be explored as solutions. It will take some political will to deal with this, as anything implemented along those lines will likely anger voters who will argue they can’t afford to pay more in gas or in tolls. I wish I could be more optimistic but this funding legislation is going to be hard to pass.
The Transportation Forecast
What should we expect to see happening in transportation in this new year?
Railroads will get back on track by spring as heavy spending on locomotives, track and bridges gains traction. The Class I railroads are now spending about $2 billion a month on this initiative, according to the Association of American Railroads. The rails hired over 17,000 new employees last year and continue to hire. As these new railroaders gain experience the nation’s rail system should experience fewer delays.
Truckload carriers will be helped, as we discussed above, by the hours-of-service rollback. With more driver schools and recruitment of nontraditional drivers, there will be some improvement in finding more people to fill the new tractors carriers are buying to expand capacity. However, it won’t be enough to ease the driver shortage even as driver wages rise. The simple fact is as the economy continues to expand there will not be enough carrier capacity to go around. Look for shippers to continue to adopt some form of private fleet operations to supply their core capacity.
Less-than-truckload carriers will have a good year as they don’t have the same degree of driver turnover as the truckload guys do. Lower diesel pricing will help as well, as it is not as big a percentage of their operational expenses as their brothers in truckload and not all of it is covered in fuel surcharge tariffs. There will be plenty of volume in a consumer spending economy and volume really helps an LTL carrier to maximize its terminal network.
Parcel carriers will make hay in a growing consumer economy as well, and the growth of e-commerce sales will make these home delivery networks hum with volume. We’ll likely see growth in regional parcel companies as shippers look for ways to hold down their growing cost of shipping due to dimensional pricing implemented by UPS and FedEx.
Air carriers will continue to find plenty of international freight as West Coast ports struggle with the transit time of containers crossing their docks. Shippers depending upon parts, electronics and fashion will expand their use of air cargo to move goods faster into the U.S. from overseas. Lower fuel costs will help profitability.
It is going to take a while to settle the West Coast port labor dispute. Even a federal mediator is going to have difficulty bridging the gap between desires for job security and the need to modernize port operations. Seemingly simple problems regarding chassis maintenance and whether ILWU members will repair them now that the steamship lines no longer own and provide chassis take on added importance for the union.
Warehouse-based logistics providers will continue to grow, as companies look to control overhead by outsourcing this portion of their supply chain to companies with the technology, processes and bench strength to establish new distribution center operations. Rising industrial real estate costs, material handling equipment expense and higher wages will make distribution center operations more expensive but this will be offset by the record low cost of owning inventories due to historically low interest rates.
Amazon will continue to compete in the fulfillment space as a third-party provider through a growing network of distribution centers positioned to provide next- or same-day deliveries. The only possible scenario that may keep Amazon from fulfilling this mission is lack of profitability and stockholder patience.
Above all, expect to see more industry consolidation within modes and outside core businesses as acquirers expand their portfolio of services.
Here at Wagner
At Wagner Logistics, the 2015 forecast is outstanding. We will continue our double-digit growth while maintaining investments in technology and people. We are excited about the new year and looking forward to serving our clients and their customers.
Have a logistics challenge? Let’s have a conversation. Bring it!
Have a great day,
John Wagner Jr.
About Wagner Logistics
Wagner Logistics is a leading supply chain management provider offering distribution center, fulfillment and transportation services across the United States. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dumas AR, Dallas TX, and Clinton, IA, Kansas City MO and KS. Wagner combines high-tech tools with high-touch product pampering to ensure that inventory is where it needs to be, when it’s needed, in the condition customers expect. From product displays to complex fulfillment to vertical supply chains for fragile products, we want to tackle your biggest challenges. Bring it!