Commentary
By looking at the technical indicators in the freight market, retailers are expected to do exceptionally well this season. With one of the best labor markets since post-World War II, increasing wages in blue-collar sectors of our economy, and ATA’s tonnage report showing a double digit increase in volume, the economy appears to be on-fire.
All of this is taking place even before any tax cut or health-care reform. Yes, America is back at work and the economy is red-hot. The other encouraging thing is that the private sector is driving demand this time and government spending is taking a back-seat to businesses and consumers.
While the transport stocks have been falling of late, there seems to be a slight disconnect between where Wall Street is and the underlying physical freight market.
Yes, drivers are hard to come by and this will certainly impact the ability for carriers to seat trucks, but driver-wage increases are coming- and while it won’t cure the driver shortage problem, it will help. Carriers can expect high single-digit contract rate increases and will likely use the additional income to invest in driver recruiting and retention programs. They are certainly going to need it, with the tightness in the labor pool.
While everyone has been talking about spot rate increases and tight capacity, what hasn’t been known is how strong the underlying economy is. The ATA freight tonnage report puts all these questions to rest. The market is strong.
Even with a slightly dysfunctional government in Washington (and maybe that is a good thing- we can all use a reprieve from crazy regulators), the underlying economy is as strong as it has been in over a decade. Ten percent tonnage increases means the rate increases carriers have been seeing is not a function of a lack of capacity, but rather true economic growth.
Best of all, as one major Wall Street Chief Investment Officer told FreightWaves, economic growth is happening all over the world. As he put it to us, “Even Japan and Italy are growing fast- we haven’t seen that in a long-time.” Yes, ladies and gentlemen, the global economy is on solid footing.
The other thing to watch is how e-commerce demand impacts the freight season this year. It has certainly compressed peak season, but retail sources have told FreightWaves they have to hold larger inventories throughout their supply-chain to respond to consumer on-demand expectations. We would certainly expect any company involved in expedited freight to do exceptionally well this quarter, as e-commerce retailers scrambled to fulfill demand for items that are hot this season.
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