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Analysts Predict Recession in a Year

aa-9-30-16Top transportation industry analysts expect that the economy will continue in a weak recovery until the end of next year, when it will once more stumble into a recession.

Those are some of the predictions were made during the 2016 Intermodal Expo, an annual trade show held 10 days ago in Houston by the Intermodal Association of North America.

Intermodal has not been doing well this year, largely due to the fact that excess over-the-road truckload capacity has depressed TL rates, making domestic intermodal less attractive.

IANA reported that in the second quarter overall intermodal traffic recorded its first volume decline after 25 consecutive quarters of growth. But most of that loss was derived from the precipitous drop in piggyback trailer volume of almost 29%, a trend that has been going on for some time, the association pointed out.

By contrast while international shipments fell 9.3% domestic container loads gained 3.4%, resulting in an overall Second Quarter loss of 6.1%.

Then came July, when industry analysts were surprised by steep drops in truckload rates and intermodal traffic. The good news is that the numbers in July look like an anomaly, and it seems intermodal rebounded a bit in August.

However, in August BNSF Railway saw 18 of 22 market segments decline, Executive Chairman Matt Rose revealed in his keynote address, including sharply reduced numbers of coal and oil shipments.

“Freight currently is in an energy depression; our customers are in a recession and the consumer is doing okay,” he declared.

Noel Perry, managing director of the industry consulting firm FTR and a former executive with Schneider National and CSX, said we are seeing the tail end of a weak economic recovery that has lasted for several years. “We’re in a recovery even though it doesn’t seem like it to a lot of people because freight always suffers as a recovery matures,” he observed.

Perry said the weak recovery will continue in the short term but will begin to slow late next year. “We’re living on borrowed time historically, so we have to be very wary. Until that happens, next year will be a lot like this one, so don’t expect much help from the economy any time soon.”

While a new recession awaits, Perry said he doesn’t think it will last very long. “When we meet again in 2020 we will be in another recovery.”

The irony is that a combination of federal truck safety regulations like the one mandating Electronic Logging Devices and the rising need for 50% more drivers before the end of next year should drive up truckload rates, which will benefit intermodal in the short term, he observed.

But don’t expect annual growth rates much above 1% in two to three years, he warned, a lot lower than the 3% to 5% seen since the last recession.

“It is likely to be difficult times for intermodal and trucking,” Perry said. “If we have a recession, traffic won’t come back quickly. Very likely your volumes won’t be much higher than they are now.”

Another wild card is the impact truck automation will have on the driver shortage and truckload capacity. Perry estimates that it could slash trucking costs by as much as 50% and predicts that fully-automated trucks will become widely accepted and in use by 2025 to 2030.

In the meantime, rail executives are decrying recent proposals by the Surface Transportation Board to mandate two-man crews.

“We currently run two-man crews on all of our trains,” said Bruno Maestri, vice president of government relations for Norfolk Southern, noting imposing this as a rigid requirement could actually stand in the way of railroads being able to adopt safety innovations in the future.

In the future more automated train operations, like Positive Train Control being installed today, will become commonplace, he said. Eventually these changes could obviate the need for two-man crews and lead to a revolution in rail safety by eliminating human error, he suggested.

Both Maestri and BNSF’s Rose also cited the fact that there is no evidence to support the idea that two-man train crews are inherently safer.

In addition, Maestri and Rose decried the STB’s proposal to allow reciprocal switching, claiming the resulting costs could endanger needed capital spending by the railroads. “The board must take the current economic climate into consideration as it finalizes rules or the consequences to our industry will be sizeable,” Rose said.

Rose also decried environmental lawsuits filed even after obtaining government approval that threaten intermodal infrastructure projects designed to promote public needs.

He cited his company’s attempt to build a $500 million green terminal facility in southern California that after nearly a decade and $52 million spent by the railroad is still hung up in court.

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