We had an inkling that 2015 would not be as good a year as 2014 for transportation companies. After all, the spike in the value of the U.S. dollar really put a damper on exports, while the collapse in energy prices didn't do much for drilling in the shales. In addition, glutted inventories, left over from the fear of a West Coast port strike, wreaked havoc with freight volumes in the second half of 2015.
As we move into 2016, we think the drawdown of the surplus inventories should largely be complete. Once comfortable, shippers will return to normal inventory replenishment practices. As for the two potential game-changers poised to influence the strength of freight markets in 2016, we would suggest that, barring a recession, supply and demand will be tighter than experienced in 2015.
The two game-changers could prove to be the early implementation phase of the Federal Motor Carrier Safety Administration’s electronic logging device mandate and the election a pro-business president of the United States. The ELD implementation will refocus shippers on the tight supply/demand dynamic likely to dominate the truckload market in 2017 and beyond. The refocusing will drive an improved pricing environment for carriers, while the election of a pro-business president could elevate business optimism to the point where the private sector could begin to accelerate its new hire rate and its investment in productivity enhancing technology and hardware and capacity additions.
With increased hiring and accelerating investment, freight volumes could surge, further heightening fears that supply and demand will tighten significantly as prices move up. Time, of course, will tell us if these factors are material and whether any tightening in supply and demand will indeed appear in 2016.
John G. Larkin, Managing Director, Stifel