Freight Drop Eases in May

This story appears in the July 6 print edition of Transport Topics.

A 3.2% rise in American Trucking Associations’ truck tonnage index during May from weak results in April may indicate that the worst of the recession could be over, even though the index was 11% below year-ago levels, industry experts said.

“I am hopeful that the worst is behind us, but I just don’t see anything on the economic horizon that suggests freight transportation is ready to explode,” said ATA Chief Economist Bob Costello, who added that he doesn’t believe tonnage will drop much further.

The month’s increase, the first since March, brought the advanced, seasonally adjusted index to 102.3, an improvement from the April reading of 99.2, which was the lowest since November 2001. The year-to-year drop moderated from a 13.2% fall in April, which was the worst decline in 13 years.

The unadjusted index was 102 in May, up 0.4% from April. In June 2008, ATA’s index stood at 115.6 as the Bush administration’s economic stimulus package helped to improve demand.

“May was a very good month, the best of the year,” said Mike Malecha, general manger of Diversified Transfer & Storage, Billings, Mont., although he said the company, whose main business is refrigerated less-than-truckload freight, saw business fall 10% from May to June.

“We’re looking for the year to remain fairly strong,” Malecha said. “We’ve seen volatility in the market. There are opportunities when the markets are somewhat chaotic. There is pressure on rates, but if you are flexible, you can cope.”

The mixed picture in the latest tonnage report reflected the latest round of economic indicators last week.

A consumer confidence report for June showed continuing weakness, as 49% of Americans expected economic improvement, a drop from 55% in the prior report. The Institute of Supply Management’s manufacturing index released July 1 rose to 44.8 from 42.8, with a reading of 50 or more signaling expansion.

The months ahead won’t bring fast improvement, Costello warned.

“The consumer is still facing too many head winds, including employment losses, tight credit, rising fuel prices and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term,” Costello said.

Reports from spot market and analyst sources gave a mixed picture of June freight demand.

TransCore’s load-matching service reported a 14% increase over May levels, a faster rate of improvement than the average 8% rise from May to June in the past five years. Year-to-year load matching activity last month trailed June 2008 by 60%.

“June 2008 will be the last of the difficult prior-year comparisons,” said David Schrader, senior vice president at TransCore, Hummelstown, Pa. “July 2008 now appears to be the front end of the severe freight recession we just went through. The year-over-year comparisons moving forward should look much less worse.”

“The freight market appears to be bottoming,” said Credit Suisse analyst Christopher Ceraso. In a June 29 report, he predicted third-quarter freight tonnage would rise 0.3% from second-quarter levels and another 0.1% in the fourth quarter.

“As of June 26, the improvement in our proprietary [truckload] index has stopped,” Morgan Stanley analyst William Greene said in a June 29 investor note, in which he said volume for last month was the lowest ever for June.

He predicted slower improvement, or decline, in the June ATA tonnage report.

“While the broader market has focused on incremental improvements in April and May [economic] data points, June could be [in] a stark contrast,” Greene wrote, noting parallels between his index and ATA’s tonnage report during April and May.

Some carriers were more optimistic about the rest of the year because a modest sequential pickup in demand will help to rectify the industry’s capacity and pricing troubles.

“Demand and supply will come back into balance by the end of the year,” said Derek Leathers, chief operating officer of truckload carrier Werner Enterprises, Omaha, Neb. “Demand doesn’t have to get much stronger, because capacity has left the market,” because of carriers’ fleet reductions and bankruptcies, he said.

Leathers estimated that hauling demand has dropped 18% from last year, and that truckload carrier capacity has fallen 15%.

Other carriers said they haven’t seen any sign of a second-half economic pickup yet.

“We’ve talked with our customers, and they are not projecting any further decreases,” said Rick Bowersox, vice president of Milton Transport Inc., Milton, Pa. “No one has said our business is picking up, either.”

Milton, which has had about a 10% decline in freight volumes this year, is coping by cutting back on its fleet size as owner-operators park their trucks, Bowersox said.

“We try to keep the drivers who are here busy,” said Bowersox. Milton is in north-central Pennsylvania, where numerous manufacturers are either working on reduced schedules or are closed.