July Truck Tonnage Falls 10.4%

By Rip Watson, Senior Reporter

This story appears in the Aug. 31 print edition of Transport Topics.

American Trucking Associations’ tonnage index fell 10.4% in July from a year ago, the slowest rate of decline since February, offering another sign that the sick U.S. economy may be starting to heal.

The decline, announced Aug. 26, showed a distinct improvement from the 13.6% drop from June 2008 to June 2009. The month-to-month comparison also was favorable, as the July index of 101.9 was 2.1% above the June results for the advance seasonally adjusted for-hire index.

Though the trend was better, the July figures represented the 10th consecutive month-to-month drop in the index, including the June decline, which was the fastest since 1996.

On the positive side, economic indicators released last week were favorable, as new home sales increased, consumer confidence rose and durable goods orders climbed, in all cases topping surveys by Bloomberg News.

Second-quarter gross domestic product fell at a 1% annual rate, which also was better than expected and an improvement over the 6.4% decline three months earlier.

“There are pockets of good news,” ATA Chief Economist Bob Costello told Transport Topics on Aug. 26, citing expectations that depleted consumer and manufacturing inventory could be replenished and help to boost GDP by 2% to 2.5% in the third quarter.

He expects inventory changes and auto sales stimulated by the now-expired federal Cash for Clunkers program to account for nearly all of that growth.

Trucking “shouldn’t expect a sharp recovery anytime soon,” Costello warned, however. “Still, even small gains are better than the February 2008 through April 2009 cumulative tonnage reduction of 15.5%.

“While I am optimistic that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consistently,” Costello said.

He also said he expects economic indicators and tonnage trends to remain volatile as the U.S. economy bottoms out, which is typical at this point in an economic cycle.

ATA also said that its index, which is not seasonally adjusted and reflects tonnage actually hauled by fleets, was 106.3 in July, down 0.9% from June.

Industry analysts don’t expect swift improvement, either.

“The next six quarters will be characterized by shrinking deficits in year-to-year freight comparisons,” Credit Suisse analyst Christopher Ceraso said in an Aug. 26 report. He said year-to-year increases in freight still aren’t expected anytime before the end of 2010. In total, Ceraso said he expects freight will fall 1.7% in 2010 from 2009 levels.

Other industry analysts also cautioned against swift improvement in business conditions.

“Trucking industry fundamentals from a demand perspective remained dismal, but not bad enough to push a significant number of trucking companies out of business,” Avondale Partners analyst Donald Broughton said in his second-quarter bankruptcy report (8-24, p. 1; click here for previous story).

“Demand appears to have quit getting worse, but many industry participants have idled a percentage of their own fleets,” Broughton said.

He added, “Severe pressure on pricing of trucking services will continue until demand improves dramatically or the rate of failures reaccelerates.”

Stifel, Nicolaus & Co. analyst John Larkin went further in an Aug. 19 report.

“With massive fiscal and monetary policy stimuli in the marketplace having had only a muted impact on reinvigorating economic growth, it appears that the upcoming recovery (should it materialize) will be L-shaped,” Larkin wrote.

“This recession is different,” he said in his report. “The consumer, which comprises about two-thirds of the U.S. economy, has slowed his rate of consumption. It seems unreasonable to assume that unemployment, the savings rate, disposable income levels and public confidence would all ‘turn on a dime.’ ’’

Wolfe Research founder Ed Wolfe, in an Aug. 17 “State of the Freight” report, also saw few signs of a pickup ahead.

Wolfe predicted weak freight volumes in the third quarter and disputed Costello’s view of inventory restocking at a time when companies are keeping the smallest amount of inventory relative to sales in three decades.

His shipper survey found that two-thirds expect volume this quarter to be below normal. About three in four shippers now plan to delay inventory replenishment, with 50% of the total respondents saying they don’t plan to increase product stocks until sometime next year.

Other recent reports and forecasts did little to change a mixed picture.

Citing a Bureau of Labor Statistics report, the Associated General Contractors on Aug. 20 noted that construction employment continued to fall in July, including a 15% year-to-year drop in workers on highway projects.

However, an Aug. 22 statement from the Transportation Intermediaries Association reported a 7% rise in freight shipments billed by third parties that participated in the trade group’s second-quarter survey.

Another possible indicator, issued Aug. 25 by Deloitte LLP, said that the economy will be starting to improve early next year, based on responses from a majority of major companies surveyed by the consulting firm.

Deloitte said that 55% of companies it surveyed “feel the U.S. economy will start showing signs of recovery in the first or second quarter of 2010.”