July Truck Tonnage Drops 3.7%

By Dan Leone, Staff Reporter
This story appears in the Sept. 3 print edition of Transport Topics.

Continued softness in the housing industry contributed to another month’s drop in truck freight volume during July, when tonnage fell 3.7% from last year, American Trucking Associations said last week.
While some industry analysts said there were glimmerings of a potential freight upturn later in the year, others, including some trucking officials, said the outlook was not bright, reflecting concern about the overall strength of the economy.
ATA said in a preliminary report, released Aug. 27, that its seasonally adjusted tonnage index fell to 110.9 in July, the fourth straight year-over-year drop and the 12th in the past 13 months. The index was 2.6% lower than the corresponding period in 2006.
John Larkin, who follows transportation stocks for Stifel Nicolaus, noted in a report to clients released Aug. 27 that “we continue to expect the trucking environment to gradually improve going forward [as] demand does not appear to be worsening [and] carriers continue to suggest that capacity is shrinking to meet demand.”
Bob Costello, ATA’s chief economist, said the housing downturn influenced tonnage more than other measures of truck freight.
“The weakness in the residential construction market continues to have a disproportionately larger impact on truck tonnage than the number of loads transported,” Costello said.
He noted that because of the heavier weight of construction freight compared with general freight, the housing slowdown affects tonnage more than other key metrics such as for-hire shipments, which were up 0.4% during the first half of 2007.
In an interview after the report was released, Costello told Transport Topics that the overall economy, which includes many service-industry components, is growing at a faster clip than the “goods economy,” which focuses on manufactured products that are potential freight for the trucking industry.
“The prevailing trend of the overall economy doing better than the goods economy . . . has not gone away,” he said. “Tonnage is weak [but] that [weakness] hasn’t shown up in all measures of truck volumes.”
ATA calculates its monthly for-hire index based on a survey of its member carriers. It compares current business activity among members with a base year of 2000, when the index stood at 100.
Recent national economic reports underscored the ongoing softness in the housing market.
The Commerce Department recently reported that construction of new homes fell to its lowest level in a decade, following a 6.1% decline in July from the previous month. In addition, the National Association of Realtors reported that sales of existing homes, which generate business for carriers hauling household goods, declined for a fifth straight month in July to the lowest level since November.
Bill Zollars, chief executive officer of less-than-truckload carrier YRC Worldwide, told The Associated Press that the slower growth in the “goods economy” continues to pose a problem for truckers.“I think the economy is a lot softer than people are saying,” Zollars told AP. “The Fed needs to move quickly and make some kind of a rate cut, so that we can generate some kind of economic growth.”
YRC, Overland Park, Kan., ranks No. 4 on the Transport Topics 100 list of the largest U.S. and Canadian for-hire carriers.
Greg Hoover, chief marketing officer for Atlas World Group, told TT that the company’s business from corporate moves, which typically occur when an employee is transferred to a new location, was “up a hair” during the summer.
However, its “cash-on-delivery” business — when individual homeowners receive an estimate from Atlas before a move and pay the carrier once their goods are delivered to a new location — was “significantly off.” He said that indicated potential problems in the fourth quarter, because corporate moves peak in summer.
“The thing that makes the quarter harder is that we’ve been supported by the corporate moving business, which is going into a traditional lull,” making Atlas more dependent on the softer residential market, Hoover said.
Atlas ranks No. 25 on the TT 100 for-hire list.
Despite the housing softness, ATA said the tonnage index climbed 0.3% on a month-to-month basis, which was the second month-to-month gain this year and the first since March.
Other reports indicated there could be additional tonnage to haul in the months ahead.
The Commerce Department said Aug. 24 that orders of durable goods, which are made to last three or more years, increased 5.9% in July.
That followed earlier reports from the Institute for Supply Chain Management, which said that both its factory index and service sector index, which includes trucking, showed expansion in July but at a slower pace than the prior month. At its latest meeting in early August, the Federal Reserve voted to keep interest rates steady at 5.25%. In the minutes of the meeting, released Aug. 28, Fed officials said that “given expectations that the most likely outcome for the economy was continued moderate growth, the upside risks to inflation remained [their] most significant policy concern.”