UNSUNG HEROES

“A hero is an ordinary individual who finds the strength

to persevere and endure in spite of

overwhelming obstacles —

Christopher Reeve

            On April 19th a legend of the music industry passed on. Most people do not know his name but they should recognize his accomplishments. From 1969 to present the works of Jim Steinman have been prominent on radio and on the music charts. He was famous for writing for great artists, including Meatloaf, Bonnie Tyler, Celine Dion, Barbara Streisand, Barry Manilow, as well as the sound tracks for movies like Shrek 2. He was a remarkable talent, an unsung hero among vocalists, whose work will go on to entertain listeners for decades to come, and yet most people will not know his name or about his relationships with so many famous singers.

Another group of unsung heroes are responsible for our ability to exist as a society with the modern conveniences, products, and food we enjoy, but once again they get little credit for their impact on our economy. We are talking about the people and companies that deliver items to stores, or to us individually, and that without them large-scale commerce would come to a grinding halt. These are the men, women, and businesses responsible for moving finished products and resources, making them accessible to consumers.

Combined the ports and shipping industry are responsible for 26% of the Gross Domestic Product (GDP) in the United States, based on 2018 data. That is $5.33 trillion. Further, 30.8 million jobs are dependent on the movement of goods through the nations ports and land transportation. That is a lot of people, capital, and items, and our economy could not survive without them.

Readers should remember that we have frequently written about the fractured supply chain and the impact it is having on companies. Now the breakdown in the shipment of goods and resources is also affecting the broad economy. From manufacturers to the sellers of finished products, many businesses are reporting delays — some excessive — that are plaguing them and interfering in commerce. While there are backlogs from closures tied to the pandemic much of the problem is now attributed to a shortage of truck drivers.

In 2014 the American Transportation Research Institute wrote a white paper entitled “Truck driver demographics approaching “cliff.””” The article noted the convergence of retiring drivers and the sharp expansion of freight demand. Back in 2014 employment gaps remained in the post-Great Recession environment, and it now appears that the situation has gotten worse.

According to the article, there was an imbalance of older drivers to younger ones. Most employees in this industry were over the age of 45 and were expected to retire in 10 to 20 years (now three to 13 years), and companies were having difficulty in finding drivers under the age of 35. So even before the near economic shutdown, the trucking industry was facing a massive hurdle. The Bureau of Labor Statistics (“BLS”) anticipates this segment of the job market to grow 2% between 2019 to 2029, although that is lower than the average of all occupations.

COVID-19 has taken more drivers off the road. From stress to physical problems, many older truckers, and even some middle-aged drivers, have taken themselves out of the drivers seat during the past year. An additional barrier came in training and hiring new drivers because many driving schools and motor vehicle offices were closed.

COMPETITION FOR HAULERS

Get in your car and take to the highways and you will see what we mean. Major roads and interstates are loaded with trucks. There are longer lines at the weigh stations and many trickers are opting to drive late nights and weekends to avoid those weigh stations, hoping to shorten their time behind the wheel, especially since many are paid by the mile.

To show you how the competition has grown, if you look at the back of many trucks you will see advertisements for drivers, highlighting everything from time off to competitive wages, and even signing bonuses. There are even changes in working conditions that are guaranteeing workers that they will be home nights and weekends.

As companies attempt to recruit more drivers their incentive plans are causing them to raise prices for shipping product. We expect these costs to be passed along to consumers. Consumer product companies are already sounding the alarms. The CEO of Clorox Co. (CLX), Linda Rendle said that transportation is also becoming more expensive, in addition to rising costs “across many inputs…” CLX is one of several large firms that have announced future price increases.

POTENTIAL GAS SHORTAGE

More than a quarter of the nations gas delivery vehicles are sitting idle. If you don’t believe us maybe you will believe Glen Hasken, the Chief Operating Officer of Molo Companies, which sells and transports fuel to gas stations and convenience outlets.

According to the National Tank Truck Carriers industry between 20% and 25% of tanker trucks are parked ahead of the summer driving season. In order to drive a tanker truck you must have a Commercial Drivers License (“CDL”) as well as special endorsements for transporting hazardous materials. Those drivers also get paid more for those extra qualifications.

There is plenty of gas to go around. The problem is moving the gas from the refineries and storage facilities to the pumps. That may result in one gas station on one corner receiving a delivery while a station on the opposing corner doesn't. In that case the station with the gas may see a higher demand and more customers, and possibly selling out of its inventory sooner, resulting in a shortage for drivers in that area. Additionally stations that have gas may raise their prices due to the short-term drop in competition.

More people are expected to take to the roads for vacations this year after being cooped up at home last year. While driving and vacationing were down during the holidays they are expected to roar back this summer. Hotels have reported sharp increases in reservations, domestic flights are booking up, and there has been reported shortages of rental cars at popular destinations.

IMPACT ON EQUITIES

One of the strongest performing benchmarks in the U.S. equities market has been the Dow Jones Transportation Average (DJTA). DJTA has been setting multiple new highs, and year-to-date this benchmark is up 25.1% compared to a rise of 11.4% for the S&P 500 Index (SPX). We have seen strength in the DJ US Trucking Index (DJUSTK), and the DJ US Railroads Index (DJUSRR) have been outperforming, and have also set new all-time highs.

We use the transportation sub-sector and DJTA as one of our yardsticks for measuring economic activity. Since all goods and resources need to be shipped watching the shares, as well as other economic data that we collect, are extremely important in judging the health of the economy, in our view.

MARKET FORECAST

While there is a rising probability for a market correction this summer, especially with the benchmarks at all-time highs, we believe that the long-term view for equities remains positive. The economic recovery is just getting under way. Inflationary pressures are rising, to be expected when economies restart, but the overall health of the country should improve as more people become vaccinated, more businesses reopen, other entities startup, and people return to work. We are seeing venues open, people returning to traveling, and new projects beginning. Governmental stimulus programs and support should teardown some barriers, making it easier for people and small businesses to build and grow. The transportation group should not only benefit from changes in activity but may become stressed, and that is something we need to closely watch. Trucking is a business of itself but is also a derivative of other businesses operations.

OUR CONCLUSION

There are few asset classes that offer the combination of liquidity and potential for returns that exceed the rate of inflation. DJTA is a leading indicator, in our view, and its rise to new all-time highs, with continued appreciation and outperformance represent the prospect for economic growth. As entities compete to transport goods and resources the cost of moving those products will rise, adding to existing inflationary pressures.

Truckers are the unsung heroes of the economy. Their skills and dedication to their craft, long hours behind the wheels of differing vehicles, not only move goods but are the backbone of the economy and the lives of everyone. Society today could not function without the trucking industry. While we don’t know the names of those bringing the items to the shelves of our stores, or the resources that are used to manufacture products, they she be celebrated for the work they do.

 APPENDIX A — Important Disclosures

Analyst Certification:

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