August Freight Volumes Climb to Highest Level in Six Months

This story appears in the Oct. 5 print edition of Transport Topics.

August truck tonnage volumes reinforced signs of a recovering economy, reaching the highest level in six months and recording the best year-over-year performance since November, according to American Trucking Associations.

ATA’s tonnage index reached a seasonally adjusted 104.1 in August, the best reading since February. On a year-to-year basis, tonnage fell 7.5%, a performance that was measurably better than the 10.4% drop in July and 13.6% in June.

In a month-to-month comparison, the results for August matched the 2.1% increase in July. ATA released the data — preliminary numbers that are subject to revision — on Sept. 25.

“The gains in tonnage during July and August reflect a growing economy and less of an overhang in inventories,” ATA Chief Economist Bob Costello said, noting that he hopes the overall trend of tonnage increases will continue.

At the same time, he cautioned that the pace of tonnage growth is hardly assured.

“While I am optimistic that the worst is behind us, most economic indicators, including industrial output and household spending, suggest freight tonnage will exhibit moderate, and probably inconsistent, growth in the months ahead,” Costello said. 

The index dipped below 100 in April, hitting its lowest level since the mid-1990s as the U.S. recession deepened. The index has climbed 5% since then.

At the same time, many national economic indicators have shown signs that the overall economy appears to be getting stronger, although not without some steps in the opposite direction.

For example, orders for durable goods, such as vehicles and appliances that are expected to last three years or more, fell 2.4% in August after rising 4.8% in July, according to the Commerce Department. Compared with a year ago, August durable goods orders fell 20%.

The Commerce Department, in its revised estimate of gross domestic product for the second quarter, said on Sept. 30 that the total of goods and services produced dipped 0.7%, less than an earlier estimate of 1%.

A Sept. 24 ATA report forecast a return to economic growth in the third quarter after four consecutive declines.

Inflation-adjusted GDP “in the third quarter of this year will grow for the first time since the second quarter of 2008 and for only the second time in the last seven quarters,” ATA said in the report. It forecast a 3.7% increase, which would be the fastest since the first quarter of 2006.

However, ATA said that growth primarily occurred because of the now-terminated Cash for Clunkers auto program and a slowdown in the pace of inventory reduction by retailers and manufacturers.

Home sales continued the pattern of mixed economic signals in August, running 2.7% behind July but 3.4% better than August last year, which also could be a sign of modest improvement, ATA said.

A longer-term positive sign is the fifth consecutive rise in the Commerce Department’s index of leading economic indicators that is meant to predict economy activity three to six months ahead.

Reports by ATA and industry analysts alike pointed toward a continued modest improvement in tonnage and underlying demand for trucking.

“The outlook for truck freight volumes is slow growth, much like the rest of the economy,” ATA said in its Sept. 24 economic report. “This will be a situation that persists until freight improves enough to absorb all of those extra and underutilized trucks. The difficult part is that no one knows for sure how much capacity has been taken out of the market.”

However, ATA said in its economic report that fleets could well avoid the depths of recent tonnage declines because supply and demand are moving closer together as capacity leaves the industry through bankruptcies, reduced purchases of new equipment and fleets’ actions.

Morgan Stanley analyst William Greene, in his Sept. 18 report, also detected recent growth, but he cautioned that any sustained improvement for truckload carriers was linked to decisions by shippers about inventory replenishment.

“Truckload demand has improved as the U.S. economy has stabilized and inventories have normalized,” Greene said.

“Fourth-quarter 2009 demand may disappoint if retailers choose not to build inventories ahead of an uncertain peak season,” Greene said in his report. “The only good news for carriers is that retail inventories are trending toward very lean levels. Any sudden uptick in retail demand should translate into greater truckload demand.”

“The worst is behind us in terms of freight declines,” Credit Suisse analyst Chris Ceraso said in a Sept. 24 report, and he said he expects a modest rebound in demand, based on anecdotal comments from transport companies and recent rail traffic trends, which have shown gradual improvement.

The uneven nature of the rail industry’s business was evident as shipments for the week ended Sept. 27 fell 17%, worse than the 9.6% drop the prior week, according to the Association of American Railroads, Earlier this year, rail shipments had trailed 2008 levels by as much as 20%.

The ATA index, which is not seasonally adjusted, represents the change in tonnage actually hauled by the fleets before any seasonal adjustment. The index equaled 105.8 in August, down 0.5% from July.