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Will Donald Trump be a Successful President?

Posted by on in Economy

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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.

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Today, the Prime Minister of Canada met with the President of the United States (#TrudeaumeetsTrump) for the first time. For President Trump, it was one in a series of meetings and phone calls that he has had with foreign leaders. For many Canadians, the question was where Canada ranks with America’s new president on trade and NAFTA.

The NAFTA agreement that was signed in 1994 between the United States, Canada and Mexico, has helped strengthen the ties between the three countries. There are nine million Americans whose jobs rely on the movement of goods from the United States to Canada. Most Canadians know that America is the number one market for Canadians goods and that Canada is the number one market for exported goods from thirty-five states. About 74% of Canadian goods are exported to the USA; 18.3% of American made goods go to Canada. The dollar value is about same. There is almost $2 billion in Commerce that takes place between the two countries on a daily basis.

In addition to these key issues, this was also an opportunity for the two leaders to set the tone for the years to come. Canadians put a high value on their relationship with the United States. They understand that we are and have been best friends, neighbours and allies. We have worked with Americans and fought beside Americans in a variety of wars.

The headlines in the Canadian media have identified that Canadians had a certain level of “anxiety” as PM Trudeau boarded a flight to Washington. During the election campaign, Donald Trump talked about “tearing up” the “terrible” NAFTA deal. From a transportation industry perspective, “trucks haul two-thirds by value of Canada-U.S. trade; anything that might disrupt that trade – whether it’s about scrapping NAFTA, a border tax, or further layers of border security – is of a real concern to us,” says David Bradley, Chief Executive Officer of the Canadian Trucking Alliance. “Moreover, anything that thickens the border and makes supply chains less reliable and predictable would have a profound impact on the competitiveness of both countries.”

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The election of Donald Trump as president of the United States will likely have a profound effect for years to come. I cannot remember another point in my lifetime where there is the possibility of so much change and disruption to established norms and principles of business. How do we prepare for what could be a roller coaster four or eight years in North America and around the world?

Knowledge is power. The intent of this blog is to propose a set of KPIs that we can all use to measure the impact of the new president and his policies. Mr. Trump has made a number of bold promises in his pre- and post-election speeches. Specifically, he has promised to “Make America Great Again,” to stem the flow of manufacturing jobs overseas and to renegotiate NAFTA. By monitoring these KPIs, they will help us determine how his presidency is impacting our countries, our companies, and our personal wealth. Here are few KPIs to consider.

1. Gross Domestic Product

GDP represents the total dollar value of all goods and services produced over a specific time period (Source: https://www.bea.gov/national/index.htm#gdp ); you can think of it as the size of the economy. The US economy advanced an annualized 3.5 percent in the three months to September of 2016. (Source: http://www.tradingeconomics.com/united-states/gdp-growth )

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This will likely be an eventful year in Freight Transportation. As I look ahead to the coming year, there will be two sets of forces at play. The President-Elect of the United States, Donald Trump, has made some bold promises. This blog will look at the potential impacts of his presidency. The next blog will examine some of the other major forces at play.

Infrastructure

Donald Trump has spoken repeatedly about improving America’s highways, bridges, and airports. The Transportation industry has bemoaned the lack of investment in infrastructure for several years. It is likely that at least some elements of whatever plan President Trump’s team puts forth will receive bi-partisan support from the other branches of government. 

It typically takes time to plan significant infrastructure projects so they reach “shovel ready” status. In addition to improving the nation’s infrastructure, these projects also create jobs, albeit over a specific timeline. Watch for some infrastructure projects to be launched in 2017 with the balance moving forward in the coming years. These projects should be a net positive for the transportation industry. However, keep in mind that some of these projects, such as toll roads, may receive some funding from private industry (if permitted by congress) and may result in higher costs for shippers and transport companies.

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Here are the top stories in freight transportation that caught my attention over the past year.

The Tepid Economy

The North American economies underperformed the global economy and the economies of emerging markets in 2016. Business investment, a key driver of the economy, was down in 2016, driven in large part by the big drop in fortunes of the oil and gas industry. Consumer spending and employment levels remained solid in the United States and somewhat less so in Canada. US manufacturing activity increased.

US imports began an uptick as did US imports of Canadian goods, driven in part by the strong US dollar and drop in the value of the Canadian dollar. Auto manufacturing remained strong in Canada but resource and activity in other sectors remained weak. The strong US dollar depressed export activity. Overall it was a sub-par year for the American and Canadian economies. As a result, demand for over the road truckload, intermodal and LTL service was soft in 2016.

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This week’s visit to Washington by Prime Minister Justin Trudeau, his family and his Canadian delegation was certainly one of the high points in U.S. – Canada relations in many years. It brought back memories of President Reagan and PM Mulroney singing “When Irish Eyes are Smiling” in Quebec City many years ago.

Watching the leaders toast each other and seeing some concrete agreements come out of the meetings was certainly a sign that Canada-US relations are back on a positive track. The fact that President Obama hosted a state dinner for Mr. Trudeau, the first state dinner for a Canadian Prime Minister in 19 years, was a very positive indicator that Canada is back in the good graces of its most important ally and trading partner.

Unfortunately for Canada, Barack Obama is in the last year of his presidency. At this point, the presidential race is pretty much down to four candidates, Bernie Sanders and Hillary Clinton for the Democrats and Donald Trump and Ted Cruz for the Republicans. As you listen to and study the rhetoric from these candidates, and sense the mood of the American electorate, there is much to worry about.

The Democrats

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In President Obama’s State of the Union message that he delivered to a joint session of congress on Tuesday, January 20, he stated that the “shadow of the (economic) crisis has passed” in the United States. The very next day, the Governor of the Bank of Canada dropped interest rates by 0.25 percent “to stave off emerging risks such as weak inflation and a real-estate downturn.” The rate cut, the first by a Group of Seven country in the face of oil prices that have tumbled to about $46 (U.S.) a barrel from $110 last June, caught financial markets off guard. The Canadian dollar plummeted about 1.5 cents to close at 81.07 cents.

This raises a number of questions. First, are the economies of Canada and the United States that different? As two large trading partners that share the largest unprotected border in the world, why has the U.S. signaled that the recession has passed while Canada has highlighted its fears of falling backward into a downturn?

It is interesting that this announcement comes as the manufacturing sector in eastern Canada revs up. Anecdotal evidence from truckers (in eastern Canada) suggests that freight volumes are strong for the month of January, stronger than in prior years. Why make this move and why make it now?

There are two ways to frame the move by Steve Poloz, the Governor of the Bank of Canada. One could look at yesterday’s announcement as an act of desperation, as the sign of a country that blinked first in the face of the challenges facing the energy industry. While we have been receiving hints of increases in interest rates for some time, this action runs contrary to expectations. It may signal a worry, possibly based on early reports of layoffs and cancelled capital expenditures in the energy sector, that the Bank of Canada had to do an “about face” and take dramatic action to counter this potential threat to the economy. Of course, this also signals Canada’s overdependence on energy, that we have two many “eggs in one basket” and that our economy is nowhere near as diversified as the American economy.

Clearly the quick drop in the value of Canadian dollar is unsettling and may not instill confidence in the Canadian government, the BOC, our currency or the Canadian economy. The central bank warned that lower oil prices would take a sizable bite out of economic growth in 2015, delay a return to full capacity and hurt business investment – a trend that has already triggered layoffs and spending cuts in Alberta’s oil-and-gas industry. Canada’s two-speed economy is undergoing a major reversal of fortunes, with the once-booming energy sector fading while the manufacturing sector is rebounding, Mr. Poloz said. Economist David Madani of Capital Economics said that “clearly, [the BoC] is far more worried about a severe housing market correction.”

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This past year was a tumultuous and transformative year in Freight Transportation. What is in store for us in 2015? Here are some trends to watch.

1. Dimensional LTL Pricing

The National Motor Freight Classification (NMFC) system, developed during the Great Depression by the National Motor Freight Traffic Association, classifies goods based on four elements—density, stowability, handling, and liability—that reflect a shipment's "transportability." However, the ratings from the system are not derived from the dimensions of the actual shipment but from average shipment characteristics. The classification methodology was not designed to accommodate the changes in modern-day production methods, where goods tend to be lighter and generally cube out in a trailer before they weigh out. For nearly eight decades, less-than-truckload (LTL) carriers have been using this system to allocate their trailer space.

Change will come to the LTL freight industry in 2015, driven by so-called dimensionializing, or dimensioning, machines that precisely calculate the amount of space a shipment will occupy in a trailer. The machines measure a shipment's dimensions—arrived at by multiplying length, width, and height—and provide proof of their calculations. A high-end "static" machine designed to measure stationary objects sells in the low to mid-$80,000s. The payoff can be rapid—30 to 60 days, depending on how a carrier uses the machine and how it calculates return on investment (ROI). Carriers like UPS Freight and FedEx Freight, LTL units of highly visible companies that have used dimensioners in their parcel operations for decades, are going that way. Old Dominion Freight Line Inc., that has used dimensioning equipment since 2009, YRC Worldwide Inc., and many of the other leading players in the LTL sector will likely follow the leaders.

2. Low Energy Prices will continue for much of 2015

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If your trucking company hasn’t been purchased or doesn’t get purchased by TransForce, will it be in business in five years?  That is the question that came up in a recent discussion with a long time industry colleague.  The response I received was that he didn’t think his company would survive.  I was a bit surprised by the response and asked him for an explanation.  This led to an interesting discussion on what it is going to take to make it in the trucking industry in 2014 and beyond.

We both agreed that while the trucking industry has changed in some ways over the past decade (e.g. more use of technology, better cost controls after the Great Recession, LNG vehicles, greater use of 3PLs as customers), the industry is not that much different from ten years ago.  The slow economic turnaround since 2008 has created a challenging environment and there is little reason to expect a major improvement in the short term.  Rate increases are hard to come by, even with a tight driver situation.  Even more of a concern is the lack of innovation in the industry and the threat that such changes could wreak on so many complacent companies.

The warning signs are there.  As a Canadian, you don’t have to look much further than Nortel and Blackberry to see what can happen to industry leaders that were not able to keep up with changing consumer needs and quality competitors.  At the same time, one can observe what companies such as Amazon and Apple have been able to do to change the paradigm of some long established industries. 

Some of the large trucking industry players are making investments in technology and people.  They are integrating back offices and focusing on achieving economies of scale.  They are thoughtfully expanding their service portfolios and geographic footprints. 

Some of the small players are offering solutions that are very tailored to certain industry verticals and geographic areas.  Companies that are focused on same day delivery, refrigerated intermodal service, pooled LTL service, energy distribution and other emerging capabilities are creating a space for themselves in the industry.

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For four years the U.S. has been in a slow motion economic recovery.  Unemployment remains chronically high with little sign of improvement.  Annual GDP growth is below 2 percent and is expected to remain at that level for some time.  This week, the U.S. Federal Reserve had to undertake its third quantitative easing initiative in the last few years, along with committing to holding interests low until 2015, to try to get the economy untracked.    

The U.S. election is less than two months away.  While the two major political parties have very different views on a range of social issues, there should be some common ground on the economy.  The fact is that there is a desperate need to rapidly increase economic growth and reduce unemployment.

While I am not a trained economist, it seems to me that there are a set of economic paths that America needs to embark on to right the ship.  It would certainly help if government and industry leaders had a shared vision of the paths that need to be taken.  Here are a few thoughts.

Both Presidential nominees talk in lofty terms about an American manufacturing renaissance.  Governor Romney has talked about creating 12 million new jobs over the next four years which would far exceed the 80,000 to 100,000 jobs per month that are currently being created.  It is almost impossible to conceive how this large number could be achieved with a projected growth rate of 1.5 to 2.0 percent GDP growth. 

While this writer and others have written about an upswing, this year, in manufacturing jobs in the United States, the fact is that manufacturing has been in decline in the U.S. economy for three decades.  Over the past 12 years, U.S. manufacturers have cut 31 percent of their workforce, or nearly 6 million workers.  This should not imply that the U.S. should give up on manufacturing.  Rather, it suggests that industry and government should focus on those sectors where the U.S. has the best chance of succeeding and leading in the world. 

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