Inflation in the cost base of the US logistics sector would appear to be strong judging by the dynamics of the road freight market.
The US Bureau of Labor Statistics’ Producer Price Index for truck transportation has continued to rise, up from 137.1 at the end of 2017 to 140.2 at the end of March. The reason for this is not surprising. Wage costs for truck drivers are increasing.
For example, the large US truck and intermodal operator J B Hunt, said that its employee related costs increased by 18.4% on an annualised basis in the first part of 2018. Bearing in-mind the fall in unemployment and the comparative shortage of people wanting to drive a truck for a living, it appears that this trend may continue.
However, the situation in other parts of the US logistics sector may not be quite as straightforward. The property agent CBRE has commented that the market for warehousing may be cooling slowly, with vacant buildings available for longer in the first quarter of 2018 than for several years previously. The company suggests that the reason for this is that logistics property is being developed at such a rate that availability is catching up with demand.
Some in property are going further. The founder of the property investment and development company Equity Group Investments, Sam Zell, commented last week to Bloomberg that the “we’re building too much industrial space. I think we got a lot of people owning industrial space today and I’m not sure there are enough tenants.”
Perhaps this is unsurprising. Interest rates remain very low both in the US and the rest of the developed world providing easy finance of fixed assets such as property. In contrast, wage growth has been poor for many years.
The implication from trends in the US is that, far from automation destroying jobs, at least in the road freight sector, it is labour shortages and resultant wage growth that will drive capital investment in new fixed assets designed to improve output per employee.
Source: Transport Intelligence, May 8, 2018
Author: Thomas Cullen
