Perry doesn’t see political uncer- “BOTTOM LINE, THERE’S A LOT OF PENT-UP
DEMAND [FOR NEW TRUCKS], BUT MARGINS HAVE TO IMPROVE, AND IF THEY DON’T IMPROVE FAST
ENOUGH, YOU COULD SEE WHERE SOME OF THESE SMALLER FLEETS GO OUT OF BUSINESS BECAUSE
THEY’VE JUST SIMPLY GOTTEN NICKELED-AND-DIMED TO DEATH ON THEIR MAINTENANCE COSTS.”
—BOB COSTELLO, CHIEF ECONOMIST & VICE PRESIDENT, AMERICAN TRUCKING ASSOCIATIONS
ing more because they’re at all-time lows and the Federal Reserve is printing money to keep these rates low, and so they’re under pressure to stop,” he said. “And even if they don’t stop, the global financial markets may say, ‘Wait a min- ute, I don’t like what you’re doing to the currency. I’m going to lower your credit rating, and that will require higher interest rates.’” Costello, meanwhile, said politi-
cal uncertainty is an important con- tributor to the sluggish economy. Businesses have spent years wrestling with the changes coming through the Affordable Care Act, otherwise known as Obamacare. Meanwhile, ongoing Washington squabbles over fiscal policy – the most recent being the government shutdown – have had an even bigger effect. “I would say all of this is already
making a difference,” he said. “This going to the brink as much as we have over the last five years. There’s a reason why corporate America has a record amount of cash on hand, right? And most if it stems from Washington. Part of it, no doubt, is they don’t know what Obamacare is going to cost them. But the other part is all of this uncertainty outside of Obamacare and are we going to extend the debt ceiling. Businesses don’t want to take risks. They don’t want to go out there and invest in new
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capital, hire more people, because they don’t know if we’re going to shoot our- selves in the foot.” Early next year, the federal gov-
ernment is expected to reach another debt ceiling—the statutory limit on how much it can borrow. Congress has always voted to extend the debt ceil- ing, but, lately, not until very close to the deadline. According to Costello, it might seem like a good idea for the federal government to stop borrowing all of this money. However, failing to extend the debt ceiling suddenly would remove hundreds of billions of dollars from the American economy in govern- ment spending. It also would create damaging multiplier effects, as employ- ers who had been doing business with the government would lose income and lay off employees. While the federal budget deficit should be reduced, he said the economy couldn’t easily absorb that kind of shock to the system. And with the level of partisanship coming from Washington these days, he believes a debt ceiling deadline could come and go with no deal. “This is what makes my job and
other economic forecasters’ job so dif- ficult,” he said. “If they don’t extend the debt ceiling, well, you’re going to hear me go 180 degrees in the opposite direc- tion and talk about the recession that’s coming.”
tainty with Obamacare or with the nation’s fiscal policies being a primary economic driver in the short term. He pointed out that, despite the shut- down and congressional squabbling, “the economy hardly even blinked in October.” The federal budget deficit, which is the amount of debt the gov- ernment adds each individual year, decreased from more than $1 tril- lion in 2012 to $680 billion in 2013, though the cumulative overall national debt continues to climb well past $17 trillion. That $680 billion represents about four percent of the nation’s gross domestic product, which Perry said is low enough that global financial mar- kets will continue to loan money to Uncle Sam. Absent a crisis, elected offi- cials won’t have an incentive to address the problem and will kick the problem down the road until after the 2016 elec- tion, Perry predicted. Perry also foresees higher fuel taxes
in trucking’s future. He said elected officials are devising ways to raise rev- enues, such as the new Pennsylvania transportation law that increases taxes at the wholesale level and is indexed to inflation. He believes increased fuel taxes also could pay for government health care programs, as in Europe. Meanwhile, he believes the federal gov- ernment will allow manufacturers to increase tractor-trailer sizes within the next 10 years. Despite these political uncertain-
ties, the underlying economics seem to favor carriers. Those able to weather the increase in driver pay will find themselves in a strong negotiating posi- tion as the economy improves and the supply-and-demand formula moves in the industry’s favor. Unfortunately, while we don’t know when the capacity crunch will come, the driver shortage is already here. Still, too few trucks will be haul-
ing too much freight. That will be good for carriers. So it will get worse before it gets better. “But then,” Costello said, “once it gets better, it’s going to get a lot better.”
ARKANSAS TRUCKING REPORT | Issue 6 2013
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