As we approach 2016, there are a number of forces that are shaping the economics of Freight Transportation. Here are a few to consider.

The US Economy and the US Dollar

The US economy is providing a number of mixed signals in December of 2015. Unemployment is at only five percent. Economic growth, while sluggish, has been able to generate a consistent 200,000 new jobs a month. But some other indices don’t look so good.

The Institute for Supply Management (ISM) PMI Index of economic activity in the manufacturing sector contracted in November for the first time in 36 months, since November 2012, while the overall economy grew for the 78th consecutive month. The November PMI® registered 48.6 percent, a decrease of 1.5 percentage points from the October reading of 50.1 percent and below the 50 percent mark that signals growth. The New Orders Index registered 48.9 percent, a decrease of 4 percentage points from the reading of 52.9 percent in October. The Production Index registered 49.2 percent, 3.7 percentage points below the October reading of 52.9 percent. Ten out of 18 manufacturing industries reported contraction in November, with lower new orders, production and raw materials inventories accounting for the overall softness in November.

A few weeks ago, I gave a presentation to a group of transportation professionals at a Best Practices in Cross-Border Freight Transportation conference in Buffalo, NY, sponsored by SMC3. I made the point that changes in just one variable, Currency Exchange, could make or break a company. As I look back over my lifetime (I am an old guy), Canada – U.S. exchange rates have varied from a Canadian dollar being worth $0.61 US to $1.10 US. As evidenced by the past few days, these currency fluctuations can occur quickly and without warning.

Furthermore, these types of variances can have huge impacts on shippers and carriers. If you look at some of Canada’s core industries (e.g. newsprint, minerals), the effects can be devastating in terms of market competitiveness, north-south freight flows, freight rates, empty miles, - - - even business survival.  Currency exchange fluctuations are just one of a number of variables that can change quickly and without much warning. There are a host of others.

Think about the winter we came through in the first quarter of this year. Is this the result of climate change? Will this be, as some suspect, the new normal? Have you made plans in the event that the next winter is as bad as the last one? We are still dealing with rail congestion as a result of the harsh winter and we are about to enter the fourth quarter. In addition to winter storms, we are seeing an upswing in other types of weather issues (e.g. tornados) in America and other countries.

Think about the Middle East that is a powder keg today. What if war breaks out in a variety of locales? What if ISIS tries to attack America? What if some sources of energy supplies are cut off and diesel fuel prices spike? What happens if the economy spikes? Think about the driver shortages today, the challenges in attracting drivers into the industry and the potential impacts on the supply of truck and rail equipment if the demand for transportation services is not met with an increase in supply. What would significant increases in freight rates do to your business?

Think about the possibility of an economic slowdown in Asia, Europe, Russia and/or South America, countries that are still dealing with the aftermath of the last recession. What would happen to our economy if some of these economies falter? We are living in a turbulent and fragile world.

Thankfully, the first quarter of 2014 is behind us. The challenging winter across Canada and the northeastern USA and capacity shortages, brought on, in part by the weather, created a difficult environment for both carriers and shippers. Are we in the clear now? With the winter behind us and with the economy improving, can we expect freight supply and demand to come into balance? Here are some thoughts to ponder.

1. Climate Change will continue to produce Bad Weather

Because of its near-total dependence on petroleum fuels, the U.S. transportation sector is responsible for about a third of America’s climate-changing emissions. Globally, about 15 percent of manmade carbon dioxide comes from cars, trucks, airplanes, ships and other vehicles. A National Research Council report states that America’s transportation infrastructure is at risk due to the effects of global warming. Severe weather and rising water levels will impact roadways, railroads, and airports. Climate change will affect transportation primarily through increases in several types of weather and climate extremes. Climate warming over the next 50 to 100 years will be manifested by increases in very hot days and heat waves, increases in Arctic temperatures, rising sea levels coupled with storm surges and land subsidence, more frequent intense precipitation events, and increases in the intensity of strong hurricanes. The impacts will vary by mode of transportation and region of the country, but they will be widespread and costly in both human and economic terms and will require significant changes in the planning, design, construction, operation, and maintenance of transportation systems.

In other words, get used to it. The next winter may be worse than the last one.

2. Capacity Shortages May Increase and Get Worse