PERSPECTIVE: Trump likely to impact trucking globally

(Editor's note: The following analysis was prepared by research firm Frost & Sullivan and presented in a report published Dec. 1, 2016)

By Sandeep Kar

MOUNTAIN VIEW, Calif. – After Donald Trump is sworn in as the 45th president of the United States in January, the global commercial vehicle industry will be watching his policy decisions over the first 100 days of his term and thereafter with great attention.

Few industries will face the impact — whether net positive or negative — of a Trump presidency as strongly as trucking, which is a leading indicator of economic activity and typically feels the effects of economic swings and fluctuations well before many other industries or sectors. While the effect of any Trump administration legislative actions will be experienced primarily by the U.S. commercial vehicle industry, global market participants and markets will have much to note and consider.

Most presidential transitions include reasonable certainties regarding upcoming policy priorities and changes that enable nations, markets and industries to prepare for their impact; over the past several decades, proposed policy changes generally have had narrow boundaries. This time it is different and, with the new administration, is going to be more different for trucking than ever before.

The following tectonic factors/areas are exposed to impending changes brought about by President-elect Trump's policies.

Economic, trade policy implications

One of the most important and powerful influences that North American on-highway and off-highway commercial vehicle markets will experience will relate to the new administration's economic and trade policies. Mr. Trump's publicly stated stand on lowering corporate taxes will definitely have cascading effects on all aspects of U.S. and global industries. Lower corporate taxes would likely result in businesses considering either establishing or reshoring U.S. operations.

While on the surface this would appear to be great news for the U.S. trucking industry, it may not be as great for either U.S. or global truck OEMs and suppliers. Lower corporate taxes will most likely drive service-based businesses to the U.S., which would be of less benefit to freight movement than a move of manufacturing operations. For manufacturers, lower corporate taxes are only one consideration; labor costs also must be kept globally competitive. This would prove much more difficult because lower corporate taxes could drive inflation and result in wage hikes, rendering the incentives much less effective.

Moreover, the U.S. and global economies are still unstable, with many nations skating dangerously close to recessionary boundaries. Economic and trade policy changes would most likely induce short-term recessionary spasms before a clearer and stable picture emerges.

The U.S. has been the single engine pulling global economies for several years now, especially after the recent slowdown in China's economy. Any recessionary pressures on the U.S. economy will create ripple effects globally – including on trucking and truck manufacturing. This makes it important for commercial vehicle executives to understand and strategize for economic and trade policy changes driven by the incoming Trump administration.

That said, expedited infrastructure refurbishment/enhancement projects and public-private partnerships focused on improving U.S. highways and freight movement infrastructure would have a net positive impact on freight and vehicle efficiencies, route congestion and sales of off-highway vehicles if the administration implements many such projects immediately. This could prove difficult, however, because their funding could trigger higher taxes since Mr. Trump has stated his opposition to increasing the deficit to pay for his infrastructure plans.

While modifications or rejections of trade treaties such as the North American Free Trade Agreement (NAFTA) or the Trans-Pacific Partnership (TPP) may adversely impact U.S. truck OEMs and their suppliers — many of whom manufacture or source from Mexico — there may be a silver lining: Several Asian OEMs in recent years have secured strong positions in light- and medium-duty truck markets; new trade policies could hurt them,  forcing more U.S. localization and higher taxation for market access, both of which will favor U.S.-based OEMs.

This also could delay the plans of OEMs from other regions that were preparing to enter the U.S. market in the next few years.

Energy industry recalibrations

Fuel costs constitute nearly 30 percent of the total cost of ownership for long-haul trucks in the U.S. The decline in crude oil prices has served the U.S. trucking industry well for the past two to three years and has prevented margin erosion for fleets and owner-operators. Mr. Trump's proposed liberal energy policies would likely prevent any aggressive or expedited introduction of alternative powertrain fuels or technologies in the country. That could put the U.S. commercial vehicle industry in a serious predicament as other places — especially China and Europe — continue investing heavily in clean technologies.

The U.S. is expected to remain the most advanced alternative powertrain truck market globally in 2017, but it may find it difficult to maintain this coveted position if Mr. Trump's energy policies jeopardize adoption of these technologies. Companies such as Cummins Inc. that have strong positions in the U.S. and global diesel markets and also are making strides in fuel economy enhancement and emission reduction technologies can benefit locally from a more liberal energy policy coupled with lower corporate taxes and higher trade barriers. But they may miss an opportunity to gain share in global hybrid and electric powertrain markets — which are expected to start large-scale adoption of electric powertrain technologies over the 2022–2030 period — if they lose focus and stop investing in advanced electric powertrain technologies.

Continuing energy price fluctuations will have disparate effects on a range of original equipment (OE) and aftermarket products and parts. For instance, Mr. Trump's pro-fossil fuel energy policies would likely have the highest impact on diesel fuel, lubricants and tires over this period.

Regulatory, legislative changes — or maybe not

During his presidential campaign, Mr. Trump promised aggressive deregulation as a major policy point to rally his base. A Republican-controlled Congress coupled with Mr. Trump's presidency could mean a deceleration or deprioritization of several regulations focused on trucking.

The U.S. Federal Motor Carrier Safety Administration's hours-of-service (HOS) regulation has long been unpopular among truckers — especially owner-operators. Industry observers will view any action regarding HOS modifications or changes with great interest, but the possibility of leaving it unchanged is plausible since the Trump administration's regulatory focus in its first several months will likely be on issues concerning trade and immigration.

The electronic logging device (ELD) mandate, scheduled for introduction in 2017, which will usher in a wave of digitization in trucks, also looks to remain unaffected as this mandate had strong Republican backing, so  repealing it at this late stage seems unlikely.

Advanced commercial vehicle technologies

Advanced vehicle technologies likely will be the least talked about but most profound area exposed to Mr. Trump's presidency. The trucking industry in the U.S. and most other places globally, including Latin America, is undergoing a transition from a product-based business model to one that depends on services, driven largely by connected truck technologies — such as telematics and digital freight brokering.

The U.S. leads other markets in developing and commercializing these technologies, but any policy that stifles innovation in digitization, Big Data analytics, information technologies or mobile and wireless services could hamper its role in ushering in a new era in trucking.

Global freight mobility market fundamentals are slowly but surely being energized, new logistics models are being created and freight efficiencies are being enhanced by commercial trucking's digital transformation — all of which will disrupt commercial vehicle industry business models, resulting in the collapse of arcane and inefficient processes and technologies and transforming an industry that forms the backbone of U.S. and global economic activity.

Given the importance of commercial trucking, any corporate tax changes, regulatory and legislative activities or incentives that continue stoking the U.S. leadership role in catalyzing service-based business models in trucking will be important and can help the Trump administration power the U.S. trucking industry's importance and influence in global markets.

Keeping all this in mind, Mr. Trump's presidency likely will have economic consequences for the U.S. and global markets.

(How trucking technologies, econometrics, applications and markets respond will be a focal point for Frost & Sullivan. An upcoming study on the 2017 medium-duty/heavy-duty truck market outlook will incorporate this and many other tectonic factors that will shape this industry's trajectory in the next several months.)

Sandeep Kar is global vice president of mobility for Mountain View, Calif.-based research firm Frost & Sullivan. This report, with accompanying exhibits and graphics illustrating Mr. Kar's analysis, appear on the company's website.