2000 economic outlook remains rosy
As the U.S. economy continues to grow, rising trade volumes will put pressure on transportation capacity, rates, and service performance.
By Elizabeth Baatz -- Logistics Management, 1/1/2000
Call this the millennium miracle. After eight and a half years of nonstop growth and an unexpectedly strong performance in 1999's third quarter, prognosticators overwhelmingly are callingfor the U.S. economy to continue growing in the year ahead. When you also consider that Japan finally is enjoying a recovery and that most of Western Europe is on track for steady growth, the economic tea leaves appear favorable indeed.
According to the Blue Chip Economic Indicators report by a panel of 50 economists, the U.S. economy is expected to grow around 2.8 percent in 2000 after a 3.9-percent jump in 1999. Optimists like economist Gayle Foster of the Conference Board and the Wall Street prognosticators at Bear Stearns & Co. place inflation-adjusted gross domestic product (GDP) growth as high as 4.0 percent in 2000. Even economic forecaster Edward Yardini, who had been worried about the effects of the Y2K computer bug, has relented and now admits that a recession is not likely.
Good news continues to pour in from all fronts. Last September, for example, the University of Michigan's consumer-sentiment survey found that long-term optimism was at its highest level since the 1960s. And in November, unemployment in the United States remained at a 29-year low of 4.1 percent. Thanks to a strong stock market that has fattened the wallets of mutual-fund shareholders, even rising interest rates and gasoline prices have failed to dampen consumers' spirits much.
The outlook for the manufacturing sector looks particularly healthy. U.S. industrial production grew an estimated 3.3 percent in 1999 and is forecast to grow another 3.1 percent in 2000. Computer production will likely slow next year, but commodity-producing industries that were troubled by production declines in 1999 will see a return to modest output gains in 2000. In particular, factories that make metals, paper, and chemicals will enjoy growing export opportunities to revived Asian and European economies.
The stateside growth is having a domino effect on the rest of the world. Most of the world's economies are moving in the right direction for the first time in years, says the Organization of Economic Cooperation and Development (OECD). Japan's structural reforms have pushed output up by 1.4 percent in 1999 and will drive GDP to grow another 1.4 percent in 2000. The European Union countries, meanwhile, are expected to see inflation-adjusted GDP rise by 2.8 percent in 2000 on the heels of a 2.1-percent gain in 1999.
Strong Demand for Logistics Services
Most importantly for the logistics marketplace, all this prosperity is causing world trade volumes to surge--and that means demand for shipping and logistics services will grow. In the second half of 1999, OECD estimates, the volume of world exports and imports rose 8.1 percent, up from 4.4-percent growth in the first half of 1999. In 2000, trade volumes are forecast to grow 6.8 percent in the first half of the year and 6.5 percent in the second half.
Growing demand for transportation means shippers can expect upward pressure on rates in many markets. According to forecasts from Thinking Cap Solutions, an economic-analysis firm in Port Angeles, Wash., average prices for U.S.-based water transportation services and trucking services will be under the most pressure, continuing the trend established in 1999. Prices for freight forwarding and other logistics services also will be on the rise after two years of declining or flat average price levels. (See "Transportation Pricing Outlook" table.)
The lively world economy will place pressure not only on logistics costs, but also on delivery schedules. Evidence of a logistics overload can be found in surveys by the National Association of Purchasing Managers (NAPM). The group's supplier-deliveries index for November indicated that delivery performance continued to slow, with an index reading of 55.9 percent. (A reading above 50 indicates slowing delivery performance.) November marked the seventh consecutive month that the index registered above 50. Industries reporting slower supplier deliveries include: wood and wood products, apparel, printing and publishing, electronic components and equipment, chemicals, paper, instruments and photographic equipment, primary metals, rubber and plastics, industrial and commercial equipment (including computers), fabricated metals, food, and transportation equipment.
On top of delayed deliveries and rising rates, shippers and carriers will also continue to face some short-term volatility in fuel prices. From October 1998 to October 1999, gasoline prices in the United States jumped 39 percent, while jet-fuel prices rose 34 percent. World oil stocks have declined sharply because of strong global demand coinciding with efforts by the Organization of Petroleum Exporting Countries (OPEC) to reduce oil production. Energy costs are also extremely vulnerable to price jumps caused by Y2K computer-bug supply disruptions and some short-term stockpiling by consumers and businesses. As a result, prices for crude oil could temporarily reach as high as $30 per barrel in early 2000, which would lead to more hikes in refined-petroleum product prices and therefore more fuel surcharges assessed by carriers.
But oil prices should settle back down by mid-2000. The big drop in oil prices in 1997 and 1998 was an anomaly caused by overproduction and an Asian recession. The steps taken by OPEC in late 1999 and early 2000 were simply an effort to re-exert control.
On the labor front, shippers and carriers alike will continue to face extremely tight markets. The U.S. unemployment rate is not expected to rise much above 4.3 percent in 2000, which means finding temporary workers will be nearly impossible in many markets. Employers will be pressed to increase benefits and improve working conditions in order to entice new employees to sign on.
Transportation-service providers will be under pressure to raise wages, too. The public warehousing industry has already raised hourly wages 4.8 percent from $11.17 in September 1998 to $11.71 in September 1999. Over the same period, wages among freight forwarders and other freight-transportation service providers jumped 4.9 percent to an average $14.34 per hour, while wages in the trucking industry rose 2.6 percent to $14.26 per hour. The pace of wage escalation in these industries will not slow down--and indeed may accelerate--in the next 12 months.
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