PHOENIX – In a broad presentation on the freight market outlook, the chief economist at the American Trucking Associations expressed general concern about the impact of tariffs on freight markets but reserved some of his strongest remarks for upcoming fees on Chinese ships calling at U.S. ports.
Bob Costello, speaking to the annual conference of the Truckload Carriers Association (TCA), said the proposals revealed last month by the U.S. trade representative, if implemented, “absolutely could change freight patterns in the U.S.”
The changes have their roots in a trade complaint submitted by labor unions during the Biden administration, charging Chinese shipping companies with engaging in unfair labor practices in shipbuilding and oceangoing freight movements.
The ATA’s contacts in the federal government said the Biden administration decided at the end of its term, “We’re not going to make a decision on this. Let’s just leave it for the next administration.”
The reaction at the ATA to that decision was, “Good,” Costello said. He then laid out why his organization thinks the policy is bad for trucking.
The proposal lays out a series of fees that would be paid under the proposal. The basic fees are as much as $1.5 million, but Costello said they can climb to $3 million.
Far fewer multiple stops?
He described a situation in which a Chinese ship now might come into the ports of Los Angeles and Long Beach, offload a portion of its cargo, head to Oakland, California, and then possibly head farther north to Seattle.
But under the proposal, Costello said, each port of call would trigger a fee. “So what they’re probably going to do is dump all of the cargo in one port and move on,” he said.
The biggest impact from that might be on the East Coast or the Gulf of Mexico, Costello said, which is dotted with smaller ports. And many of them are vital for exporters, he added.
“There’s a good chance a lot of these ocean carriers are not even going to make that call and not go to Mobile [Alabama] anymore,” Costello said. That could hinder exporters from finding capacity to export their products.
“It absolutely could change freight patterns,” Costello said. “I think it’s a really big deal.” He said the issue is “just something to watch for” and that the ATA is “working on this.”
His overall forecast was one of caution, with an outlook for moderate growth tempered by uncertainty over the impact of tariffs.
But within the forecast, like his observations about the Chinese shipping fees, were several other under-the-radar developments that could shift the supply/demand balance in trucking.
B-1 drivers under scrutiny
It isn’t a new issue, but Costello said he anticipated a possible crackdown by the Trump administration on Mexican B-1 drivers who, upon getting into the U.S. by driving freight from Mexico, then stick around and drive domestic routes before heading back south of the border.
That domestic movement is called cabotage, and using a Mexican driver in the U.S. under the B-1 program to haul cabotage freight is a violation of the law.
“This will cut down on capacity when we get them to start cracking down on it, which is hopefully in the not-too-distant-future,” Costello said.
He spoke of a visit he had with customs officials in Laredo, Texas, the most active port city in the U.S. Costello said most agents, when speaking with somebody outside of U.S. Customs and Border Protection, “hold it pretty close to the vest. They don’t go out on a limb.”
But Costello was surprised when a customs agent he was speaking with opened up and said “it’s absolutely happening” when asked about Mexican drivers violating B-1 rules.
“He told me they had a driver in their system that would cross the border if not every day then every other day,” Costello said. But suddenly, he said, the driver disappeared for three weeks after crossing into the U.S.
As Costello recalled, the CPB agents, when the driver finally returned, asked about the reason for his lengthy absence.
“And the driver said, ‘I’m really sorry, but this company that I dropped the load off told me to park my truck and then I need to get in one of their trucks and go make runs in the U.S.,’” Costello said.
He added that there were signs of enforcement against these activities within the Biden administration, with the prospect that the Trump administration would continue the crackdown.
But Costello said enforcement is not going to be directed at drivers. Rather, he said, they would focus on fleets that employed the B-1 drivers and shifted them into cabotage activities.
“They can issue big fines,” Costello said. “There have been people in the past that have gone to jail for this, so hopefully there is nobody in this room doing it. If you are, here’s your warning.”
Costello touched on a few other, more microeconomic aspects of the current freight market:
- The general consensus in the trucking industry is that private fleets in recent years have been growing, which would be at the expense of, among others, the truckload carriers that make up the TCA’s membership. Costello said that reversed earlier trends but another shift may be coming. “I think the growth was a knee-jerk reaction by a lot of private fleets,” he said. “I don’t think that’s where they want to be. I don’t think they want to have these additional trucks, because now they start to have some of the problems that all of you face.” But Costello added that the “unwinding” of those larger fleets “doesn’t happen overnight. … Over time, I think some of that freight is going to continue to come back to the for-hire industry.”
- It’s been noted by others that low used truck values might result in banks being slow to foreclose on debtors in trouble, because, Costello said, the banks think, “Why am I going to repossess these trucks when I’m upside down on their values?” So they let them keep operating. But if tariffs go into effect – and Costello laid out a case that they would significantly raise the price of a new truck – used truck values will rise in response. If that happens, those banks that might have been reluctant to pull the trigger on a repossession may find that the economics of doing so now work.
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