These are the major developments shaping the freight transportation industry in North America in the second half of 2019.

1. We are entering a period of Economic Uncertainty

Despite a climate of record low unemployment levels, low inflation, a positive ISM manufacturing index and other encouraging economic indicators, the US Federal Reserve cut interest rates on July 31 by a quarter point, the first such rate reduction since 2008. This action is being framed as a precautionary measure to protect the United States from slowing growth in China and Europe, and from uncertainty over President Trump’s trade war. The fact is that this unpredictability is beginning to weigh on business investment in the United States and abroad. Shippers and carriers should closely monitor the key economic indicators to assess whether this and possible other rate cuts will sustain the decade long economic expansion or ease the impact of an approaching downturn or recession.

 Global Economic Outlook

Early this month, the International Monetary Fund downgraded its outlook for growth in the United States, Europe, Japan and the overall global economy and pointed to heightened trade tensions as a key reason. U.S. trade talks with China continue without resolution, and there are indications that the rate of Chinese economic growth is slowing. The IMF expects the world economy to grow 3.3% this year, down from 3.6% in 2018. That would match 2016 for the weakest year since 2009. In its previous forecast in January, the IMF had predicted that international growth would reach 3.5% this year.

U.S. Economic Outlook

Economists expect U.S. first-quarter growth to decelerate less than previously thought even as they cut forecasts for the rest of the year, projecting a second-quarter rebound will fade as the effects of tax cuts wane. The median estimate for growth in the first three months of the year increased to 1.6% from 1.5% seen last month, according to an April 5-10 Bloomberg News survey. At the same time, forecasts for the second quarter held at 2.6% while those for the third edged down to 2.2% and were lower for the fourth, at 2%.

North American freight markets are witnessing the strongest demand for transportation services in decades. Contract and spot freight rates continue to soar. The contract rate average revenue per mile rose 3.5 percent in 2017. Through the first two months of this year, contract truckload freight rates have jumped 15 percent per mile! “We’ve never seen numbers like this,” according to Bob Costello, the American Trucking Associations’ chief economist. So far in 2018, the total number of loads is up 5.4 percent compared with the same period a year ago.

Supply chains are also changing. The number of miles driven per load continues to decrease for full truckload carriers. The average miles driven per haul in the United States fell 34 percent last year to 524 miles, down from nearly 800 miles about 15 years ago. A changing supply chain is behind the decline, Costello said. Online and big box retailers have increased their number of distribution centers across the country, shortening distances for deliveries. The number of miles truckers are driving annually also has fallen and now stands at about 100,000, roughly 35,000 miles less than 15 years ago. Sales of trucks in the heaviest Class 8 weight segment continue to be strong as demand grows from both leasing companies and motor carriers.

CEOs are taking notice and are highlighting the impact of freight costs on their financial results. What are the drivers of this rapid escalation in freight rates? The industry is benefitting from low unemployment, booming housing starts and strong online sales growth, according to Mr. Costello. America is still feeling the impact of the three hurricanes last year and the difficult winter storms.

Truck fleets are also having difficulty supplying the needed capacity. Market demand indices show that capacity is very tight. The load to truck ratio in most parts of the United States is at a very robust 5.5. loads per piece of equipment. There are 10 flatbed loads for every flatbed driver. The impact of the ELD mandate has also contributed to driver shortages. The ELD mandate has increased the time to move loads from 1.05 days to 1.22 days on loads traveling 450 to 550 miles. Trucking companies are not expanding their fleet sizes since they cannot find drivers to fill their trucks. Even with the significant increases in driver pay, trucking networks are 100% full or higher. Truck fleets are allocating their precious assets to shippers that have speedy pick up and delivery requirements and pay compensatory rates.

Donald Trump created high expectations as he became president in January 2017. These expectations were fueled by his extensive list of campaign promises (https://www.washingtonpost.com/news/post-politics/wp/2016/01/22/here-are-76-of-donald-trumps-many-campaign-promises/?utm_term=.bb0ed2101fa1 ).

While Trump made much of his “Make America Great Again” slogan, one can only look back on the past year as a major failure. While a high quality conservative judge was appointed to the Supreme Court and some executive orders were signed, there are few other successes to point to. Despite having control of all three branches, the Republicans could not pass any major legislation during the past 10 months of 2017. America withdrew from the Trans Pacific Partnership Agreement, a major 12 country trade pact and the Paris Climate Change accord, that has been signed off by every other country other than the United States. While these actions may appeal to the Trump base, they are not creating jobs in America.

Four emerging developments threaten to stifle the Trump presidency. They are the passage of a Tax Reform bill, the Muller investigation into Russia meddling into the U.S. election, America’s threat to pull out of NAFTA. and the sexual harassment scandals that are emerging in the political, entertainment and media sectors.

The Tax Reform Bill

It is still too early to make an assessment if Donald Trump will succeed or fail as leader of the free world. In the months leading up to the election, and in the short time that he has been in office, a clear profile of Donald Trump’s leadership skills and style is emerging. How he employs these leadership traits will determine his legacy. These are my observations to date on his demonstrated leadership characteristics that may serve as a predictor of his performance.

Strengths

Vision

In the months leading up to the election, Donald Trump and his close colleagues saw something that others did not fully see and appreciate. They saw millions of Americans who were left behind, who lost their jobs to automation and/or foreign countries and who were experiencing stagnant wages. They captured this vision into a clear (but questionable) vision of America.