MARCUS: Transportation tells us about economy

It was a shameless act. I invited myself to a national conference on transportation held by FTR Associates in Indianapolis.
FTR (Freight Transportation Research) monitors and forecasts freight movements to assist transportation companies and their
manufacturing suppliers. In good Hoosier tradition, this sophisticated group is headquartered on Grandma Barnes Road outside
Nashville in Brown County.

Along with approximately 170 attendees, I found the FTR conference exceptionally informative.
Here was clear proof that our many national concerns are manifest in the widespread transportation industry. The level of
economic activity determines the demand for transportation services and equipment. The North American Free Trade Agreement
and globalization have changed what moves and how. Health issues have caused the federal government to link commercial drivers’
licensing to the body mass index. Environmental regulations have shaped the industry and promise to reshape it again.

The invocation was the economic outlook offered by William Strauss, an economist from the Federal Reserve Bank of Chicago.
His extensive presentation was an excellent review of how we got where we are and a reasoned examination of the recovery ahead.
He made it clear that no one should compare this recession to the Great Depression of the 1930s. We are “not in the
same city, let alone in the same ballpark,” Strauss said.

Perhaps the most important of Strauss’ predictions
was a coming shortage of housing. He found deferred household formation as the pent-up demand that will break forth when employment
and income-generating opportunities improve. The current annual rate of housing construction, at 500,000 units, is declining
toward the replacement rate of 300,000 units. With home construction a relatively easy market to enter, housing could come
back quickly, if (always the if) financing is readily available to developers and home buyers.   

However,
the following speakers were not as optimistic. Some saw no recovery in the next year and others doubted that a bottom to the
recession has been reached. This is normal. Business analysts often are most cautious and want “real” evidence
of recovery before they acknowledge a turnaround. Economists seek signs and omens that appear as shadows in the foggy future.

“Real” evidence does not come until a rise in shipments is sustained. For each business operator, there
is no recovery until it shows itself on the top and bottom lines of the income statement. For economists, the bottom is at
hand when the rate of decline slows. In other terms, the rain may continue to fall, before the sun shines, but the torrential
cloudburst is over.

One motif that went unchallenged during the sessions was that the transportation industry suffers
from excess capacity. This was seen as particularly true in trucking, where continued downward pressure on prices is forced
by eager competitors. Some trucking firms are “zombies” kept in business by banks that do not want to foreclose
on equipment they cannot sell at prices to cover the outstanding loans. Nonetheless, many minor bankruptcies are anticipated
and one carrier that has 20 percent of the less-than-truckload market is expected to restructure dramatically or leave the
business.

In the rail sector, there are an estimated 750,000 rail cars parked on sidings, with many being stripped
for replacement parts, one speaker said. The problem is the desperate decline in automobile shipments in North America coupled
with decreased intercontinental trade.

Of particular interest to Hoosiers were the cross-claims about the future
of coal. Will coal continue to be king or will environmental concerns topple the throne?

For truck, rail and barge
lines, plus their suppliers, this is a major question that will shape their businesses in the decades ahead. While the railroads
toot their horns about their environmentally friendly freight services, trucking advocates point out deficiencies in their
arguments. It was a lively exchange, in the midst of an engaging conference, significant far beyond the walls of the meeting
room.•

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Marcus taught economics for more than 30 years at Indiana University and
is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.