Members of the Atlanta Fed's Trade and Transportation Advisory Council convened on April 7 at the Atlanta Fed's Jacksonville Branch to discuss the Southeast latest developments in this sector.
Just over half of council members reported an expansion of overall activity compared with the same period last year. A few members reported reduced freight activity, citing the primary causes as both a decrease in movement of materials related to oil exploration and the appreciation of the U.S. dollar against the euro. Members noted that severe winter weather affected shipments for railroads and truckers primarily throughout the north and northeast United States, and the West Coast ports situation disrupted supply chains across the country. East Coast port volumes are now over capacity as shippers began diverting cargo away from the West Coast. Council members anticipate that it will be August before the backlog of port cargo will be cleared, a situation that may adversely affect the peak fall shipping season. However, members believed that many of the structural problems of the West Coast ports will remain in place long after the labor situation is resolved.
Employment, wage picture largely mixed
A majority of council members reported that employment levels were flat or slightly higher compared with this time last year, and two-thirds of council members expect higher workforce levels this time next year.
Truck driver shortages remained an almost universal concern for the industry. Technicians (formerly referred to as mechanics) are also in demand and harder to find as new federal emission requirements demand workers with more specialized skills.
Responses regarding wage pressures were mixed. Trucking companies continued to raise driver pay, as finding willing and qualified truck drivers remained difficult. Outside of specific areas of expertise, such as railroad engineers and technicians, employers were easily filling nondriver positions without increasing starting salaries. Logistics firms, however, perceived the labor market as tightening and reported more frequent voluntary turnover with "higher pay" being cited as a reason for leaving. Additionally, candidates were receiving multiple offers and enhanced benefits packages.
Nonlabor input costs and prices
A number of council members reported seeing some upward cost pressures in nonlabor inputs such as commercial insurance, equipment, locomotives and leases, ocean freight rates, and domestic trucking rates. The sharp decline in fuel costs, however, has helped keep overall costs down.
Almost all council members reported better pricing power since the last meeting in October 2014. Members indicated that some customers understand market forces and work to negotiate the best deal possible with their current carrier, but others shop around for the lowest cost. All council members anticipate greater ability to raise prices one year out and beyond, citing constrained capacity and expected higher commodity prices as the principal reasons, along with seeking to recover increased regulatory compliance costs.
International trade rises modestly
Council members with insight into international trade indicated modest growth in imports, related to the strong U.S. dollar against the euro and other foreign currencies and an improved domestic economy. Regions expected to drive demand for U.S. exports are South America and Asia as those economies continue to expand consumer buying power. Near-shoring is expected to become a bigger trend, and the automotive sector's investments in Mexico will drive greater cross-border growth between the United States and Mexico.
Outlook
Two-thirds of council members expect higher growth in the short term. Over the next two to three years, three-quarters of members expect higher growth. When asked about the most challenging issues facing the transportation sector, responses varied by sub-industry. Driver shortages continued to be the headliner, along with regulatory issues, which continued to drive capacity out of the market and significantly push up operations costs. Broadly, the supply chain has been adversely affected by infrastructure constraints, and this impact could persist: the United States has a great need for well-planned and properly funded hard infrastructure investment in ports and road networks to get goods to market.
The council meets again in October, and SouthPoint will report whether the summer months reflect improving conditions for the movement of goods.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch