The growth in freight transportation will continue to outpace total economic growth over the next decade, but we should not expect the rapid growth experienced from 1995 to 2007, according to Carl Sonnen, president of Informetrica, who recently addressed CILTNA's annual Transportation Outlook Conference in Ottawa.
In his presentation, "The Economy and Transportation in the Near Future," Sonnen forecasted that freight transportation would grow 3.6% from now till 2014, surpassing the total growth of the Canadian economy which he forecast at 3.1% till 2014. Although much better than the -5.5% contraction experienced during 2008-2009, it's considerably short of the 4.9% growth posted from 1995 to 2007. And growth will decel erate as we head into later part of the decade, slowing to 2.1% for the Canadian economy and 2.3% for Canadian transportation.
Sonnen sees Canadian transportation being impacted by a confluence of factors: decelerating growth in North America coupled with continued rapid growth of the "BRIC" nations (Brazil, Russia, India and China) and their need for raw materials.
Sonnen said decelerating growth will become the reality among all the industrial countries over time. He blames stunted labour force growth for the slowdown, pointing out that in Japan, where slowing growth of the labour force emerged in the past, growth was slowed by 0.3%. For Canada, he expects sharply decelerated growth of the labour force (to 0.6% per year at the end of this decade compared to 1.6% annual growth from 1995 to 2007, and 1.1% growth likely in the next five years.)
Sonnen believes that to alter the deceleration of labour force growth from the view that underpins his case would require "dramatic" changes to assumed immigration and/or sharp upward increases in participation rates of older (aged 65-75) Canadians in the workforce. Vast improvements in productivity are also not likely to be our rescue, Sonnen believes. He said that to alter changes in growth of productivity, which approximates that of the past, would require changes to corporate behaviour, innovation, and technology that appear to be deeply entrenched in our country.
Yet the economies of Brazil, Russia, India, and China are expected to continue growing at a rapid pace, partly because of their improving ability to compete internationally.
"The half-full part of the glass, from our standpoint, is continuing rapid global demand for something we have in abundance -resource commodities. This has a significant effect on my view of prospects for transportation," Sonnen said.
Looking specifically at transportation, Sonnen provided the following "big picture" analysis:
Almost all sectors of the economy that generate the direct demand for freight transportation (resources, light manufacturers and construction) were severely depressed in 2008-09. As in all past cycles, the switch to growth among these industries in the recovery phase of 2010-14 should be especially strong. This follows in large measure from the performance of merchandise trade exports, which ties back to performance of the US economy as well as the BRICs.
For 2010, if recent changes are indicative and growth of the last few months persists throughout the year, freight transportation real GDP would increase by 14% in 2010. Looking to the longer term, expect growth to be notably slowed when compared to the coming recovery phase, with most of the numbers for 2015-2022 reflecting a slower pace than was registered in the benchmark previous long-term period.
The continued rapid growth of the BRIC nations will particularly help the industries which dominate marine and rail traffic, namely agriculture and food processing industries, forest and forest products, metals and first-stage manufactures, chemicals, and the energy industry. In contrast, trucking, which should be more influenced by the performance of transportation equipment and light manufactures, and construction (a cyclically sensitive sector), is looking at a slower long-term growth future than prevailed in the past. It will also be hampered by slowing import demands and industry in the US.
Sonnen also provided detail on the industries key to transportation:
Food -The story here is some modest growth in 2010-14, but stagnation or small reductions in the grains part of the agricultural industry. Some steady modest growth of live animal and meat exports. Among other things, this assumes that a resolution can be found to the US COOL (country of origin labelling) regulations that severely limit production of Canadian pork for the export market.
Forest Products -US housing starts fell from a level of 2.1 million in 2005 to 550,000 in 2009. All forecasts point to a sustained strong pace of growth recovery from 2010 through to the middle of this decade when the previous peak level of starts is recovered, Sonnen said. He added this is a key factor for Canadian lumber exports, so he expects a robust growth recovery of that over the recovery years. This implies that those sawmills that survived the downturn will face a strong growth market, particularly if the US recovery of housing starts is reached. However, the growth of Canadian lumber exports should be taken with caution, Sonnen advised, since these remain 40% below 2006 export levels and the North American newspaper print industry continues to collapse.
Coal -Sonnen expects recovery of the domestic, anthracite coal industry as BRIC (and industrial country) requirements for producing steel continue to grow strongly. Not reflected in here and of some importance to the marine industry is the prospect of sharply reduced (eliminated?) imports from the US if Ontario completes the closure of its coal-fired plants by 2014, with consequences for ports at Nanticoke and elsewhere on the Great Lakes.
Fertilizer -The potash industry was reduced by almost 60% in 2009 and the pesticide, nitrogenous and other related industries were reduced by 16%. Sonnen expects the global recovery will produce recovered exports of fertilizers with previous peak amounts of 2007 approximately recovered by mid-decade. After that, there is little further advance.
Iron Ore -Iron ore exports recover at a modestly robust pace for 2010-11 and then grow at a steady moderate pace. They finally recover their previous peak levels recorded in 2006 only in 2022, so for this industry, this a form of "permanent" damage.
Transportation Equipment -Robust pace of growth during the recovery phase for the automotive assembly and parts industry, with a still robust pace after 2014 (i. e., more rapid than in the long-term past). Sonnen forecasts that 2007 levels of GDP and automotive product exports (assembled cars, trucks and parts) will not recover previous peak levels until the beginning of next decade.