Freight Tonnage Soars to 13-Year High

By Rip Watson, Senior Reporter

This story appears in the Jan. 30 print edition of Transport Topics.

Truck freight rose 10.5% in December, the fastest pace in 13 years, as surges in manufacturing and inventory restocking propelled American Trucking Associations’ tonnage index to a record high.

The seasonally adjusted index reached 124.5, the trade group reported on Jan. 24, achieving the greatest year-over-year percentage growth since July 1998 and pushing the index above the previous high mark of 121.6 in January 2005.

“Not only did truck tonnage increase due to solid manufacturing output in December but also from some likely inventory re-stocking,” said Bob Costello, ATA’s chief economist, who also said he was surprised by the magnitude of the gain.

“Inventories, especially at the retail level, are exceedingly lean, and I suspect that tonnage was higher than expected as the supply chain did some restocking during the month,” Costello said.

During 2011, tonnage rose 5.9%, which also was the largest annual rise since 1998.

Month-to-month comparisons were equally favorable.

The index spiked 6.8% in December above November, eclipsing the 0.3% sequential increase in the prior month. The month-to-month improvement was the fastest since January 2005.

The trucking report underscored the strengthening economic picture.

The Federal Reserve on Jan. 18 announced a 0.9% rise in factory output in December, which was the highest growth pace in all of last year. Among the growth sectors were wood products, metals, machinery, plastics and chemicals.

In addition, the Commerce Department said on Jan. 26 that orders for goods meant to last three years or more climbed 3%, adding to the positive momentum.

For the full year, manufacturing activity as measured by industrial production rose 4.9% on the heels of 5.8% growth in 2010, ATA reported on Jan. 20. Though the increases were healthy, production still trails the record year of 2007 by 8.5%.

“Manufacturing remains an engine of growth,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, told Bloomberg News on Jan. 18, when he accurately forecast the December gain in factory output. “Manufacturing has benefited from exports to emerging markets. The more resilient those economies are, the better it is for U.S. manufacturing.”

While output grew, inflation remained tame, with consumer prices unchanged on a month-to-month basis in December and just 3% higher than a year earlier. Meanwhile, unemployment has fallen to a three-year low of 8.5%.

Other industry sources also noted wide-ranging progress.

“We expect truckers to benefit from inventory restocking, as holiday freight volumes were strong in December, coupled with low store inventories,” said Justin Yagerman, an analyst at Deutsche Bank. “We expect freight demand to remain seasonally strong during January/February, given solid retail sales (up 6.3% year-to-year in December) coupled with low inventories, growing consumer confidence, and stable income levels.”

Costello said that he believes tonnage will continue to show increases this year but not at the brisk pace of 2011.

Yagerman said trucking and other freight businesses will continue to see solid demand early this year because of “inventory restocking, positive manufacturing activity trends, solid retail sales growth and sustained improvements in the leading economic indicators.”

The Conference Board released a report Jan. 26 that showed a 0.4% increase in December on top of a 0.5% increase in November over October.

Also on a positive note was a Jan. 25 report from the National Association of Realtors that agreements to sell previously owned homes were at a 19-month high, possibly signaling a recovery for the housing market.

Still another indicator of strong demand last month was a Jan. 25 report from load-board operator TransCore, Portland, Ore., which said its North American Freight Index rose 11%.

That indicator, which measures spot market freight available on its load board, now has been at its highest level since 2005 for the past four months.

From the shipper side, a Dahlman Rose & Co. survey found that 42% of shippers surveyed in the fourth quarter were more confident that the economy is moving in a positive direction, analyst Jason Seidl said. That was a sharp improvement from the third-quarter survey when just 10% of customers showed growing confidence.

“Business conditions continue to improve, and responses indicate the rate of improvement is accelerating,” said a Jan. 25 report from UBS Securities that was based on a carrier survey. It was the eighth consecutive quarterly survey in which fleets noted improving business.

Solid demand was reflected in higher TransCore spot market rates that rose about 5% above year-earlier levels. Higher rates also were credited by publicly traded truckload fleets for improved quarterly financial performance they reported last week.

ATA’s not seasonally adjusted index, which measures tonnage actually hauled, rose 0.8% from November to December to 116.4. That was 7.3% above the December 2010 level.