According to A. Duie Pyle logistics executive Frank Granieri, logistics companies are right now running a little “gun shy” with the economic uncertainties of the trade war.
The talking heads on the financial networks have been warning about a slowdown in the United States economy for some time, and eventually they are likely to be proved out. The recent anemic jobs report was one warning sign as is data showing a dip in car sales, both here and in China.
Freight is well known to be a cyclical business and an eventual downturn is to be expected. What makes the current situation confusing is that 2018 saw a freight boom with massive equipment ordering and increasing driver wages, so that this year’s lower numbers may reflect nothing more than a reversion to historical business conditions.
But the possibility of an economic downturn—exacerbated by the dislocations caused by the Trump tariffs and the threat of more—has created an atmosphere of uncertainty, and that makes freight companies and others more reluctant to invest to the extent they have been in the recent past.
Despite the current uncertainty, “businesses are continuing to invest and grow, albeit at a slower rate,” said Frank Granieri, COO of Supply Chain Solutions at the logistics company A. Duie Pyle. “They are, however, a little gun shy and more than likely beginning to consider the next six-to 18-month pre-election cycle when thinking about committing cash.”
A. Duie Pyle, for its part, is seeing strong growth in 2019. This Granieri attributes to two factors. In the less-than-truckload (LTL) sector, Pyle benefitted from bankruptcy and closure of New England Motor Freight, once the 19th-largest LTL carrier in the country. “In our contract dedicated business we are benefiting from soft 2018 comps,” Granieri added. “The dedicated market is getting more difficult in that we are seeing a flight to non-contracted capacity as spot rates drop.”
While truckload rates in the spot market have dropped steeply, rates have thus far held up in LTL, according to Granieri. “Contract rates are now following with drops expected in the mid-single digits,” he said. “It’s important to note that these drops come after a record year of increases, so comps are difficult.”
The trucking industry is benefiting from the growth of e-commerce—particularly regional carriers with infrastructure close to consumers. “An industry slowdown could potentially benefit e-commerce logistics,” said Granieri, “by bringing additional transportation capacity to the market thus driving down rates while providing for increased service levels. However, in order for e-commerce to continue to keep up with demand, warehouse space will continue to be vital to ensure adequate distribution capacity.”
If a recession does come, Pyle “will look to capitalize by investing in future warehouse and cross-dock capacity,” Granieri said. This will position the company “to service our customers when the inevitable turnaround occurs and capacity tightens.
“For those who have been in the transportation business for any length of time,” Granieri added, “these cycles have a way of creating opportunity for those that exhibit patience and conduct their business affairs with a view towards long term growth and sustainability.”