The economy will continue to recover, however, it will remain uneven across the U.S. Some states will continue to outperform as businesses and workers migrate, and regions with pro-energy development and/or pro-business policies grow; Texas, Utah and North Dakota fit this definition.
We also expect strong growth in California as technology companies continue to tap into the wealth of talent available locally. This uneven growth, combined with steady exports to the developing world, near-shoring, in-sourcing, automated manufacturing, 3D printing, omni-channel distribution, e-commerce and demand for same-day delivery present new challenges to the nation's trucking companies, railroads, warehousemen and third-party logisticians.
To make matters even more challenging in 2015, carriers and logistics professionals will have to cope with the ever-worsening driver shortage, severe port congestion, chassis imbalances, railroad service, a cavalcade of federally mandated safety, fuel efficiency and air quality regulations, and the lack of a coherent, sufficiently funded federal transportation infrastructure plan. Even if the economy grows no faster than 2 to 3 percent in 2015, enough incremental freight will be generated to push even the best operators to find levels of capacity never before seen.
This will be supplemented by ongoing efforts to streamline supply chains, product designs and packaging strategies. The carriers and 3PLs able to adequately cope with the mounting challenges while marshaling the capacity required by service-sensitive customers should be in a position to exercise significantly more pricing power than had been seen in recent years.
Margins and earnings should continue to expand as larger, well-capitalized and systematized carriers and 3PLs raise prices while further consolidating market share. With inflation generally in check, the primary risks to the scenario we have outlined for the bigger carriers would be an external shock such as an armed conflict, health pandemic, sovereign debt crisis or recession abroad.
John G. Larkin, Managing Director, Stifel