As we have experienced for several years now, the first quarter came on strong, then we muddled our way through the rest of the year and entered the following year just slightly above where we were the previous January.
Freight shipment volumes experienced five three-year lows during 2013, while freight expenditures hit eight three‐year highs. Unemployment fell, yet the number of new jobs created averaged below 2012. The number of workers leaving the labor pool has reached near‐historic highs. The Congressional budget stand‐off in the fall led to a shutdown that forced 800,000 federal workers, and even more contractors, off the job. It has been estimated that the shutdown slowed economic growth in the fourth quarter (the numbers are not in yet), from the strong third quarter showing of 4.1 percent.
Even the factors that contributed to the much‐improved third quarter GDP did not translate to increased freight.
Increased inventory investment, a deceleration in imports, and strengthened state and local government spending were the strongest upward drivers of third quarter GDP. The first two do not drive shipping activity.
Additionally, exports fell in the third quarter and the housing market, which was stronger in 2013, slowed in the fourth quarter. New starts lagged well behind permits issued, and new construction is what will lead to increased freight.
Manufacturing gained strength for most of the year but at a very modest rate. Although better than 2012, which included several months of contraction, 2013 was still well below pre‐recession production levels. The Institute for Supply Chain Management's average PMI in 2013 was 53.9 - not much higher than January's starting point of 53.1. The PMI was lower in December, falling from 57.3 to 57.0. Production fell 0.6 percentage points, but new orders rose by the same amount. Order backlog contracted 2.5 percentage points, largely due to the 4.5 percentage point drop in new export orders.
Looking forward to 2014 there are some hurdles, but the freight picture should strengthen as the year progresses. Congress is ahead of the budget issue - which had been kicked down the road in November - so another shutdown is unlikely. Transportation employment, especially in trucking, has been rising in recent months. Globally, new orders are up, but more for exports to developing countries than to the U.S. or Europe.
The market for U.S. goods should strengthen by the second half.
The Federal Reserve will begin tapering its quantitative easing strategy in January, which will effectively push interest rates up. This could put a strain on trucking companies' purchases of new trucks. But if the economy grows as expected in 2014, it is imperative that new trucks be added to the fleet in quantities greater than those needed to simply replace those being retired. The high inventory levels are going to be drawn down in 2014, if for no other reason than the fact that higher interest rates are going to make them more costly to carry. Consumers still hold the key to completing the recovery, and there are few signs that they feel confident to resume old spending habits. The lower labor participation rate plays a big role in the amount of disposable income available for anything but necessities. Many are finding that as their unemployment benefits end they still have few job prospects, so they are joining the ranks of those who are not actively in the labor market.
My prediction is that freight growth will still be measurably stronger in 2014 (albeit slow and uneven). Volumes will be up consistently for several months, putting pressure on capacity before we see a rise in rates. The virtual rate freeze that has existed for almost three years should thaw and give way to higher freight expenditures by the second half of the year due to higher costs and volumes.
Wilson has more than 30 years of experience in the transportation and logistics field and is the author of the Annual State of Logistics Report, an analysis of the supply chain industry published by the Council of Supply Chain Management Professionals. She is also the co‐author of Securing Global Transportation Networks, a supply chain security reference and college textbook.
