Will the Tax Stimulus Package Uplift the Trucking Industry?

Will the Tax Stimulus Package Uplift the Trucking Industry?
Monday, March 24, 2008

Starting in May, U.S. taxpayers will begin receiving stimulus checks from the U.S. government worth $100 billion in total. Congressionally mandated, the tax stimulus package aims at pushing the economy forward by encouraging consumers to indulge themselves in shopping sprees for clothes, travel, home appliances, and other luxuries. Trucking executives hope that the $100 billion economic stimulus package will improve the overall economy and break the deadlock of the supply chain caused by the increased cost of fuel.

Bob Costello, an economist for the American Trucking Associations, believes that the stimulus package will boost the overall economy, and consequently the trucking industry will see modest growth by the second half of the year. Based on Costello’s calculations, freight tonnage will see an increase of over 2 percent in the second quarter, 1.5 percent in the third, and nearly 3 percent in the fourth. Costello believes that this tax stimulus package is different from the $38 billion tax rebate enacted in 2001 in part due to its obviously much larger number and its built-in income caps, which ensure that it will go to those who are most likely to spend it.

On the other hand, Chaz Jones, Morgan Keegan & Company Inc. analyst, questions whether the stimulus package will ever boost the U.S. economy, believing that, in a $12 trillion economy, it will not have any noticeable effect. With more than half of the freight hauled by U.S. trucking companies coming from the construction, automotive, and retail industries, Jones believes that by next summer these sectors will not see any upturn in business. Jones states that inventories run short out there, and retailers are well aware of the prospects of the consumer and overall economy; a tax stimulus will simply not give much of a boost to sales.

While air freight may get some boost as consumers spend their tax rebate on line, the truckload and less-than-truckload sectors are expected to see big gains that could last up to three or four months at least.

Fuel prices, which as of March 10th saw an increase of 42% over last year, along with concurrent freight slowdown, which is hitting the trucking industry, are putting truck drivers out of work and at a near risk of losing their jobs. Mike Bruns, a Comtrak Logistics president, says what is likely to happen in the days ahead is that freight levels will increase, and drivers will continue to go out of business, resulting in a condition in which drivers are less than freight, and eventually an excess of goods will be out there with no one to haul it.

Facing increased fuel prices, shippers try to use fuel-efficient modes whenever they can. Truckloads are being diverted to the railroads, which are three times more fuel-efficient. Last week, Con-Way Inc. limited its trucks speed from 65 mph to 62 mph in an attempt to save both fuel and the environment. In this sense, the fuel savings will add up, and the trucking industry will be more sustainable and environmentally conscious.