Trends in Freight Transportation in 2017 – Part 1. The Trump Effect

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.

Jobs

During the election campaign, Mr. Trump spoke frequently about creating new jobs in America or preventing existing jobs from leaving the country. At the time that this blog was being prepared, Mr. Trump was taking great pride in negotiating the retention of 1000 jobs at Carrier Air Conditioning in Indiana. It needs to clearly understood that United Technologies, the parent company of Carrier Air Conditioning took this action not just to be a good corporate citizen, but also because they received $7 million in incentives (or bribes) over 10 years and because they probably received threats to their government defense contracts. This deal begs several questions.

Is it a net positive or negative for the U.S. economy? Will President Trump be able to replicate this type of deal with other companies? Will he and his team be able to craft a strategy to encourage growth for specific types of commodities, industries and jobs in America? Certainly, the Carrier deal creates a high profile “photo op” for the Trump administration. The question is whether this type of approach will produce significant results for the broader American economy and generate more activity for the freight industry? We will all be watching.

Trade

President-Elect Trump has vowed to pull out of the Trans Pacific Partnership (TPP) Agreement and to cancel or revise the NAFTA agreement with Canada and Mexico. Time will tell how these two policy positions play out. The NAFTA agreement has been in place since 1994. Supply chains in certain industries (i.e. automotive) are complex and tightly integrated between the three countries. At this point in time, the value of the peso and even the Canadian dollar are significantly below the value of the American dollar. The cost of manufacturing a car in Mexico is significantly lower than manufacturing the same car in America.

The decision to impose tariffs on imported goods and/or move manufacturing from Mexico and/or Canada to the United States, would have significant cost penalties for American consumers. It would be very inflationary and possibly result in financial hardship for many American citizens On the other hand, moving production of specific products to the United States, from Mexico and/or Canada, could have positive impacts on some American jobs and provide political benefits to President Trump and his party.

The impacts on the transportation industry would be somewhat different. If there is any migration of manufacturing to the United States, this could change the pattern of freight flows in certain business sectors. Instead of cross-border shipments of auto parts, automobiles, softwood lumber and/or beef, there may be more movement within the United States. One should also remember that exports are very important to the United States. If certain trade agreements are cancelled or changed, this may result in trade barriers (i.e. tariffs) from other countries. The high U.S. dollar coupled with tariffs on imported goods from the United States, could impact the U.S. balance of trade and the U.S. economy. President Trump and his team will have to think through the consequences of any actions that are taken to change trade agreements.

Climate Change

There is overwhelming scientific evidence to support the need for reducing carbon emissions and saving the planet from certain disaster. President-Elect Trump has selected Myron Ebell, a noted climate change denier, to head the Environmental Protection Agency. Mr. Trump, who has recently said that he has an open mind on the topic of climate change, has stated in the past that he plans to exit the Paris accords. In terms of US engagement with environmental policy, it doesn't look good. To those who aren't bothered about climate change, Ebell and Trump are a dream team.

Mr. Ebell has a proven track record of questioning excessive regulations, that have come down from the federal level, that have minimal, if any, meaningful environmental benefit. Myron Ebell is likely to call into question not only policies such as the Clean Power Plan to reduce pollution from power plants, but a host of environmental regulations that have been promulgated by the Obama administration. The agency may very may well consider eliminating the greenhouse gas regulations for new and existing power plants, shutting the door on the Clean Power Plan.

If Trump remains in office for two terms, or if America leaves the Paris agreement, then we may miss a large part of the opportunity to save the planet. Some hope that the momentum behind the green technology, broader sustainability industry and even mainstream industry that is already adapting to climate change might appeal to Trump's business-minded approach. Certainly, any easing of energy conservation requirements of transport companies would have a positive effect on their bottom lines but possibly have dangerous long term consequences.

Regulation

The election likely means significant policy changes regarding health care, labour, the environment and immigration. Changes in safety rules that have been mandated by the U.S. Congress are unlikely. Electronic Logging Devices (ELDs) are likely here to stay although compliance in the United States is still a year away. ELDs are now commonplace with many carriers and the ATA supports this initiative.

The final rules on the alcohol and drug clearinghouse and entry level driver training are expected soon. If the OPEC agreement to reduce oil production holds, this may cause fuel costs to rise. Changes in immigration policies could hurt companies that employ undocumented workers. This might help with employment of American born workers but be inflationary as well. Overall there is likely to be some easing of regulations on the trucking industry but it remains to be seen if these developments are a net positive for the economy.

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