Executives Say Political Uncertainty Adds to Challenging Environment

This story appears in the Sept. 10 print edition of Transport Topics.

NEW YORK — The wavering economy and mounting political uncertainty are combining to intensify the trucking’s struggle to maintain growth, industry executives and experts said.

John Steele, chief financial officer at Werner Enterprises, said that although July followed seasonal patterns, August was “somewhat sluggish and a little less than we hoped for.”

“There is a fair amount of caution going into this peak season and the election,” Steele said. “The election has placed some uncertainty in the market.”

He and other executives spoke at the Dahlman Rose & Co. investor conference here on Sept. 5.

“The economy from my perspective is dead flat,” said Joseph Cowan, CEO of Cowan Systems, who said his company is growing only as business migrates from small fleets that have failed.

Con-way Inc. has seen “modest softening” of tonnage trends in the less-than-truckload sector that are slightly trailing seasonal norms. Shipments in July matched 2011 before dipping 0.7% in August, Con-way Chief Financial Officer Stephen Bruffett said.

Three other large less-than-truckload carriers also said tonnage was weakening.

Wes Frye, CFO at Old Dominion Freight Line, said tonnage growth in the third quarter will be 6.5% to 7%, about one percentage point lower than previously estimated.

Saia CEO Richard O’Dell said tonnage was off 2.5% in August, worse than a 1.6% decline in July.

In addition, Arkansas Best Corp. said in a regulatory filing on Sept. 6 that its third-quarter LTL tonnage will lag measured against last year, and that its operating ratio would be worse than 98.4 in the second quarter. Typically, that ratio im-proves 1.6 percentage points from quarter to quarter.

Freight is “one day up and flat the next day,” said Henry Gerkens, CEO of Landstar System, which late last month lowered its third-quarter revenue and earnings outlook.

“It’s just pretty choppy at this time.”

Frozen Food Express, however, is seeing strong volume this quarter because the carrier handles produce and candy that moves during the third quarter, said its CEO, Russell Stubbs.These fleet comments generally are tracking with the latest projections from Bob Costello, chief economist of American Trucking Associations.

“Freight is slowing, but it’s still growing,” he said during an Aug. 28 webinar.

He is forecasting tonnage growth of 3% to 3.5% for all of 2012, compared with a 3.7% rise in the first half of the year.

The string of 32 consecutive months of year-over-year tonnage growth could be in jeopardy, Costello said, because freight will struggle to keep up with five strong months at the end of 2011, including a record in December.

“The economic outlook for the rest of the year is for moderate growth with real [gross domestic product] averaging less than 1.5% in the second half of 2012,” Costello said, less than the 1.7% pace in the second quarter.

“U.S. policies are also reducing economic growth,” he said. “Congress and the Obama administration not solving the impending fiscal cliff now [i.e., a combination of tax hikes and government spending cuts hitting simultaneously early next year] is reducing business investment and hiring today.”

“To think businesses aren’t concerned about this is fooling ourselves,” Costello said.

Investment bank Stifel, Nicolaus & Co. went further, predicting that truck tonnage in December will trail the year-earlier month for the first time since December 2009.

The lone bright spots in the freight picture are the tank truck and flatbed sectors, which are doing better than shipments of dry or temperature-controlled freight, Costello said.

Because tank and flatbed loads are heavier than van freight, increased volume in those two sectors have increased the tonnage index faster than the growth in total loads handled, Costello said.

The 3.7% tonnage index growth outpaced the slower total truckload shipments of 2.8%, he said.

Factors such as the increase in hydraulic fracturing, or “fracking,” for natural gas and oil have boosted tank truck shipments faster.

Tank truck, including all liquid and dry bulk shipments, climbed 13.8% in June and 7.7% in the first half of this year, on top of 15.1% load growth in 2011 and 10% in 2010.

In the flatbed sector, a recovering housing market is helping to power solid load growth of 6.6% in the first two quarters of this year, far above the 1% pace last year and the 3.7% rise in 2010.

Flatbed should be further helped by shipments home repair products after Tropical Storm Isaac caused damage in Louisiana, Costello added.

“When you hear people talk about a recovery that doesn’t feel like a recovery, that is very clear in the dry van numbers,” said Costello, referring to the sector that makes up about half of all truckload volume.

Dry van loads dropped 0.3% in the first half of this year, after a 2.8% decline in 2011 and a 1.3% increase in 2010.

“Hopefully, we will get into positive territory” in the second half of this year,” Costello said.

The temperature-controlled sector has been lagging, other than a 5.1% increase in June, Costello said, with almost no growth in 2012 after a 4.1% drop in loads last year and a 2.3% increase in 2010.