FTR’s Noel Perry Provides Pessimistic Yet Futuristic Look at State of Freight

By Gwendolyn Brown
NTDA President

Freight Transportation Research (FTR) Economist Noel Perry shared his outlook on the state of freight at the Sept. 13–14, 2017 FTR Transportation Conference in Indianapolis, IN.

Trucking vs. Intermodal and Rail

While trucking and intermodal have been growing, rail carload is 25% below where it was in 2006.

“If you are invested in rail, take money out. Barge is also down. Intermodal is growing faster than GDP, and trucking is still decent and growing,” said Perry.

According to Perry, 2017 has been a very good year for truck and intermodal. While during the last two years all modes of transportation were down a bit, trucking and intermodal were up in 2017. Perry cautions though that trucking and intermodal may not see such spectacular growth over the next two years.

“Trucking will grow by 3% in 2018 and by 2% in 2019. From a demand side, it will be a modestly comfortable environment that will not require you to do anything different whether you are a supplier or a carrier,” said Perry.

Long-term though, Perry says there is a lot to think about.

“Changes we are looking at over the next 6–15 years are coming faster than anyone thinks. When the market changes and based on the radical nature of those changes, 90% of carriers and suppliers will leave the industry because they are not equipped to handle the change. If you want to be part of that 10%, figure out how you are going to be part of the solution versus part of the old problem,” Noel ominously predicts.

According to Perry, for companies making long-term capital investments, the run rate for recovery is down for carload and up or truck and intermodal, but not quite as much for truck. These markets are still catching up from the “great recession.”

Perry adds that the market will not stay strong long-term and that everyone should use very conservative numbers for long-term planning.

Debt to GDP Ratios

Perry cautions that the U.S. ratio of debt to GDP is 3:1, while Japan is at a ratio of more than 6:1. China is increasing its debt and soon will be out as far as Japan. Pretty soon banks will stop lending and it will create economic disruption.

Perry warns, “There is a major economic recession every 10 years. Be prudent because the disruption is coming in one form or another.”

The fundamental reason the U.S. has imported goods from China has been due to cheap labor.

“Currently, China’s labor cost remains 4% lower than in the U.S. so it is worth shipping across the ocean, but if we are getting the automation benefits in transportation that take labor out of the equation we have no reason to source goods from other countries,” said Perry. “There will be a substantial decrease in the import of foreign goods by 2020. The cost of doing business in Mexico is higher in every way in the U.S. apart from labor.”

Perry points out that if his forecast comes true for the import/export market, which is currently comprised of 30% trucking and 50% intermodal, those markets could be in trouble.

“Be very careful with capital spending if you are in the intermodal market.”

 Fuel Conservation and the Tank Market

According to Perry, the existing trend regarding petroleum fuel conservation will accelerate from 10 million tank loads to 3 million tank loads of fuel by 2020. This would mean a need for one-third less tank trailers by 2020.

Expedited delivery service (e.g., last mile) for Amazon or other services, cover the entire country with six major hubs/holding points. According to Perry, delivery services will minimize their major hubs to three points.

“With automated delivery, inventory holding will be profoundly decreased. Transportation will be taken out of the economy. Ton miles will be removed from the economy,” predicts Perry.

Perry also prognosticates that transportation in 2030 will be significantly lower unless we significantly improve the cost and efficiency of transportation through technology.

“Then we will invent new things that we did not do previously. Then we will see innovation and elasticity. Trucking needs to achieve half the cost and twice the service. Long-term is full of risks and profound opportunities. It is so big that it will defeat most of us,” said Perry.