This has been a remarkable year in history and in the world of Freight Transportation. Here are some observations on the major developments that will shape 2019.

1. The Coming Economic Downturn and Recession

The looming emerging markets credit crisis is expected to grow in both scale and scope. Some emerging markets have come under serious economic and financial stress as a result of foreign-denominated debt and currency depreciations. An emerging markets credit crisis will unfold in 2019.

Most economic forecasters, including various government agencies and big Wall Street banks, expect the American economy to continue growing in 2019. But there is a broad consensus that the pace will slow as the “sugar high” provided by the Trump administration’s $1.5 trillion tax cut and spending increases begin to wear off.

The curve between U.S. three-year and five-year and between two-year and five-year yields inverted this week for the first time since the financial crisis. Furthermore, as has been long predicted, it is anticipated the two-year and ten-year yield curve will follow suit. The latter is seen as a reliable predictor of recession in 12-18 months.

In addition, there are signs of weakness in some parts of the US economy. “We’re in the 10th year of the expansion, and there are some soft points,” said Ellen Hughes-Cromwick, the associate director of the University of Michigan’s Energy Institute. “The auto sales cycle has peaked, and the housing cycle also has peaked.”

Mr. Trump’s tariffs on aluminum and steel have raised costs. Auto sales have been in decline since 2016, and General Motors said last week that it would cut 14,000 jobs and shut down five North American factories.

The US Federal Reserve’s interest rate increases are also weighing on some parts of the economy, including home building. Sales of new and existing homes have fallen in recent months as interest rates on mortgage loans have risen. Mr. Trump’s trade war with China (see below) is inflicting pain on some parts of the economy, notably in the Midwestern farm belt, where growers of soybeans and other crops have lost access to their largest export market.

From a freight transportation perspective, current sentiment appears to have finally stabilized. This year, the mid-year to date decline has been the largest that has been seen in Morgan Stanley’s Truckload Sentiment Survey over the past 4 years. In fact, this year’s sentiment trends are more similar to those in 2015/16 than 2018. These developments, taken in combination with the severe stock market turbulence in recent weeks, an economic downturn coupled with a recession are very likely in 2019.

2. The Mueller team concludes its Investigation and finds extensive criminal activity

There have been some significant developments in the Mueller investigation during the first half of December 2018. The sentencing memos for Michael Flynn, Michael Cohen and Paul Manafort have confirmed several issues. The Mueller investigation is proceeding at a good pace and they have captured a significant amount of insightful information. It is also clear that they are uncovering various criminal activities that implicate President Trump and his inner circle. Third, based on the amount of redacted information, most of us have only seen the “tip of the iceberg.”

Bob Mueller has secured numerous guilty pleas and obtained wide-ranging indictments charging Russian intelligence operatives with two distinct conspiracies: to hack U.S. computers and to interfere with the U.S. political system. He also convicted former Trump campaign chair Paul Manafort of numerous crimes, ranging from fraud to witness tampering.

With the Democrats taking control of the House of Representatives and Adam Schiff being responsible for the House Judiciary Committee in 2019, this should speed up the procurement and visibility of information on this file. The question is whether the House Democrats will wait until Mueller shares more information or will they take preemptive action.

This observer predicts that the crimes that are being identified are so serious that they will generate Articles of Impeachment. They may be strong enough to encourage the required number of senators, from both parties, to support impeachment. The response to the recent Khashoggi killing suggests that some Republicans may be willing to distance themselves from President Trump to salvage the party and their jobs.

3. A Year of European Disunion

This was a difficult year for the European Union and 2019 will likely get worse. While Emmanuel Macron set out to advance a pro-business / pro-climate change agenda, when he was elected, he is facing riots from the Yellow Vest movement on the streets of France. This has prompted him to back off his proposed increase in fuel prices. His popularity ratings are now very low, and it is questionable if they will improve before the next election.

At 11:00 PM London time on March 29, 2019, the U.K. is scheduled to leave the European Union after 46 years of membership. Theresa May is trying to sell her Brexit plan to the British parliament. If she fails, this could trigger a vote of non-confidence and hasten her departure.

There is also an upcoming vote on the European Union parliament. This vote is shaping up as a referendum on the 60-year old European experiment.

Angela Merkel, Germany’s leader will be stepping down and Germany’s Christian Democratic Union (CDU) chose its new leader, 56-year old Annegret Kramp-Karrenbauer, who is seen as a protégée of the outgoing Chancellor. The election of a close Merkel-ally to lead the party during the remainder of Merkel’s tenure as Chancellor promises stability. Nevertheless, nationalist groups are on the rise in Germany, have won political victories in Italy and Austria and are in power in Hungary and Poland. The selection of AKK will hopefully stabilize a region in transition that will be subjected to some powerful forces in 2019.

4. Another Year of Planet Destruction

After several years of little growth, global emissions of heat-trapping carbon dioxide experienced their largest jump in seven years, discouraging scientists. World carbon dioxide emissions are estimated to have risen 2.7 per cent from 2017 to 2018, according to three studies released from the Global Carbon Project, an international scientific collaboration of academics, governments and industry that tracks greenhouse gas emissions. The calculations, announced during negotiations to put the 2015 Paris climate accord into effect, puts some of the landmark agreement’s goals nearly out of reach, scientists said.

“This is terrible news,” said Andrew Jones, co-director of Climate Interactive, “Every year that we delay serious climate action, the Paris goals become more difficult to meet.”

The studies concluded that this year the world would spew 40.9 billion tons (37.1 billion metric tons) of carbon dioxide, up from 39.8 billion tons (36.2 billion metric tons) last year. The U.S., which had been steadily decreasing its carbon pollution, showed a significant rise in emissions—up 2.5 per cent—for the first time since 2013. China, the globe’s biggest carbon emitter, saw its largest increase since 2011: 4.6 per cent.

The calculations show that global carbon dioxide emissions have increased 55 per cent in the last 20 years. At the same time, Earth has warmed on average about two-thirds of a degree (0.38 degrees Celsius), according to the U.S. National Oceanic and Atmospheric Administration. We are not just the generation that is doing more than any previous generation to contribute to climate change; we are expediting planet destruction. “The direct consequences of climate change will be harmful enough,” writes Stephen M. Walt for Foreign Policy, “but I believe it will also have profound effects on US foreign policy.”

“Why? Because adapting to a warmer planet is going to be really expensive.” “The condition of the planet will be determined by the laws of physics and chemistry, not by Trump’s tweets, denials, bluster, or relentlessly head-in-the-sand approach to a rapidly warming planet.”

The lessons we are learning from the riots in France (that were precipitated by an increase in fuel taxes) and the pushback against the imposition of carbon taxes is that most citizens support action on climate change so long as they don’t hit their pocketbooks. To sell action on climate change, there is a requirement to provide citizens with an indirect (i.e. mass transit) or direct (i.e. income tax reduction) incentive. Don’t expect too much in 2019.  These types of policy changes iare likely what it will take to turn the tide against planet destruction in the years following 2019.

5. Hauwei, US and Foreign Trade Policies

At the Group of 20 summit in Buenos Aires, President Trump called a temporary truce with President Xi Jinping of China in the nearly yearlong trade dispute between the two countries. The United States will continue to impose a 10 percent tariff on up to $250 billion of Chinese goods but will hold fire on threats to boost that duty to 25 percent in January. China, which has countered with $110 billion in tariffs on American goods, will reportedly lower some tariffs on American-made autos and resume buying soybeans and other agricultural commodities that had been priced out of the market by the countervailing duties.

However, no document was signed in Buenos Aires; the two countries have given themselves 90 days to find a framework from which to construct a new trade agreement — something they haven’t been able to do over the past two years. In addition, China has not given an indication that it will make any big concessions in 2019.

The arrest of a senior Hauwei executive in Vancouver this week will increase tensions between Canada, the USA and China. This is a hugely important company to the government of China and to Chinese pride. Whatever the justification for this action (ostensibly due to bypassing sanctions on Iran), this can only serve to antagonize the Chinese at a time when the US is trying to achieve some important trade concessions.

Mr. Trump has famously boasted that trade wars are “easy to win,” but he has not achieved any success. He opted out of the TPP deal that would have connected the US with several Pacific countries.

While the so-called USMCA treaty has been signed by the United States, Mexico and Canada, after calling NAFTA the worst trade deal ever negotiated, NAFTA2, is an incremental update on NAFTA1. “The economic implications are little to none,” noted UBS Wealth Management’s chief economist, Paul Donovan. And there’s no guarantee that Congress will approve NAFTA2 or that Mexico’s new president, Andrés Manuel López Obrador, will abide by it. The ongoing imposition of tariffs against Canada on steel and aluminum, for supposedly national security reasons, is an enormous irritant to Canadians and does nothing to improve relations between the world’s two largest trading partners.

Whatever the rationale for imposing them, tariffs are taxes. The president has little to show for his trade wars. He has been obsessed with reducing the trade deficit, which stood at $566 billion last year. Yet the trade deficit is rising, not falling, because Americans like buying inexpensive goods from foreign nations (including China); in addition, the US dollar has strengthened, which generally makes imports cheaper. Jobs have not come flooding back to the United States. Instead, tariffs prompted some American companies to shift their sourcing of goods from China to other parts of Asia.

Amidst the unsettled backdrop of global protectionism that has overshadowed the advancement of trade policies by President Trump, the European Union has made bold strides in a “forward” direction. The number of new free trade agreements (FTAs) enacted by the EU has been substantial in the past two years.

FTAs are helping European businesses compete more successfully and export more to countries and regions outside of the EU. They also give better access to raw materials and vital components from around the world. The EU-South Korea FTA has significantly boosted two-way trade. The EU also enjoys increased trade benefits from FTAs with Japan, Vietnam, Singapore, a host of non-EU states in Europe, and states in Africa and Latin America. The EU-Canada FTA (CETA), which was ratified this year, has been provisionally applied. Mr. Trump has taken trade hostage, and we will likely continue to be prisoners of this policy in 2019.

6. The Emergence of Electric Vehicles

Starting in January 2019, all major automobile manufacturers operating in China, from global giants Toyota Motor and General Motors to domestic players BYD and BAIC Motors, must meet minimum requirements there for producing new-energy vehicles, or NEVs (plugin hybrids, pure-battery electrics, and fuel-cell autos). The government policy is similar to cap-and-trade systems being deployed worldwide for carbon emissions. Car manufacturers can buy credits if they miss the quotas or face fines or assembly line closures. By 2025, Chinese leaders want 7 million cars, 20% of the total, to be plug-in hybrids or battery-powered.

GM recently announced the planned closure of five plants in North America. Many of those who will lose jobs are now working on conventional cars with internal combustion engines. GM CEO Mary Barra said the industry is changing rapidly and moving toward electric propulsion, autonomous vehicles and ride-sharing, and GM must adjust. She said GM is still hiring people with expertise in software and electric and autonomous vehicles.

The automaker said it was ending Chevrolet Volt production because the vehicle was meant to be a bridge to fully electric cars when it was introduced about a decade ago. The Volt has a small battery that can take it about 50 miles, then it switches to a small gasoline engine. Since it was introduced, battery technology has improved dramatically.Now the full-electric Chevrolet Bolt can go up to 238 miles on a single charge.

Developers of aerodynamic and other equipment that helps fleets curtail fuel use in diesel-powered trucks say they see similar opportunities with electrified vehicles. Most prototype tractors from manufacturers planning to offer electrified Class 8 trucks have aerodynamic designs. One of them, the hydrogen-electric Nikola Two Class 8 model, is slated to begin limited production by 2021, followed by full production the next year. The company has said the truck will have an operating range of 500 to 1,000 miles.

Tesla expects to have its 500-mile-range Class 8 Semi for fleet testing in 2019, and the company has been previewing the truck by driving it to carriers that have placed orders for it. Thor, a California-based startup, is taking a different approach. It is testing the ET-One, a formerly fuel burning truck that it has converted into a $150,000 electric rig. The truck can haul 80,000 pounds three hundred miles on a single charge. Many trucking companies throughout North America are testing electric trucks and these announcements will likely accelerate in 2019.

7. Investing in Infrastructure

The Democrats will be taking control of the US House of Representatives in 2019. One of the few issues where Democrats and Republicans seem to agree is on the need to fix America’s failing infrastructure. The challenge is where to find the money to pay for these improvements. One of the solutions is to utilize private funds to pay for significant portions of these costs. Toll bridges and toll roads may be a solution that the various stakeholders can agree on to move this initiative forward. Watch for President Trump to push for a win in this area. It may be one of the few areas where he can achieve legislative success in 2019.

8. Turmoil in the Middle East

The Middle East is a mess. The Saudi blockade of Yemen is putting millions of lives at risk. Saudi Arabia has admitted that journalist Jamal Khashoggi was killed inside its consulate in the Turkish city of Istanbul, likely at the request of the crown prince. The President and the US Senate are at odds as to how to deal with a long-standing US ally. The US has shown little interest in intervening to protect the lives of the citizens of Yemen. The US has withdrawn from the Iran nuclear deal. The war in Afghanistan continues year after year. There is not much to be optimistic about in this part of the world.

There seems to be little interest on the part of the Israelis and Palestinians to discuss peace. Benjamin Netanyahu, the leader of Israel, the strongest democracy in the Middle East, is facing legal trouble. While he is clinging to power in the Knesset, there is currently no one who can replace him. Unless the US and its allies change their policies, which does not seem likely at this time, 2019 may be another year of turmoil in this region.

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