June Truck Tonnage Drops 13.6%

This story appears in the Aug. 3 print edition of Transport Topics.

American Trucking Associations’ tonnage index declined 13.6% in June from year-ago levels, the biggest such decline since early 1996.

Tonnage also fell 2.4% in June from its May level, which had improved from a dismal performance in April and prompted comments that the bottom of the freight recession might have been reached. Instead, the seasonally adjusted index for June fell at the highest rate since February 1996 to 99.8 from 102.3 in May and was barely above the low of 99.2 posted in April.

Tonnage now has declined on a year-over-year basis for nine consecutive months, beginning in October. And as the economic mainstay that carries 70% of U.S. freight, trucking continued to be buffeted last week by mixed economic reports.

On the plus side, durable goods orders other than transportation equipment rose 1.1%, but fell 2.5% when orders for airplanes and cars were included. Also, consumer confidence fell 2.7 percentage points in July from June levels, while new home sales rose by 8% and prices of new and existing homes stabilized.

“There is nothing to suggest the economy is going to take off anytime soon,” said Bob Costello, chief economist for ATA. “Things haven’t changed much from month to month in the economy. We are bouncing along the bottom.”

“We are going to bounce around for a while,” Costello said, adding that he doesn’t expect the gross domestic product to reach a long-term growth rate of 3% until late 2010.

Investment bank Morgan Stanley’s seasonally adjusted index of dry van truckload volumes also lacked hoped-for signs of a budding recovery.

“After peaking in early June, our index has trended downward modestly on an absolute basis and remains at all-time lows for this time of year,” Morgan analyst William Greene wrote in a July 27 report. The index was begun in 1995.

Fleet executives also highlighted the continuing market weakness, but some of them sounded positive notes.

“Second-quarter 2009 freight comparisons were well below volumes during the same period in 2008, in part since June 2008 was the strongest freight month for the company during 2008,” Werner Enterprises said in a July 20 statement. “Management is cautiously optimistic that freight is bottoming, but it remains difficult thus far in July 2009.”

While noting the extreme freight declines that accelerated in the second half of 2008, Arkansas Best Corp. CEO Robert Davidson said that in July, “year-over-year tonnage declines were somewhat lower than we saw in the first half” of the year.

“We’re seeing modest improvements,” Davidson said during a July 23 conference call. “However, we’re cautious interpreting this potential stabilization of business levels.”

On a seasonally unadjusted basis, the index number of 107.3 followed the typical month-to-month pattern, rising 5.2% from May to June.

A key factor to watch in the months ahead is the level of U.S. business inventories, Costello said.

He noted that manufacturers and retailers alike have slashed their inventories, but economic demand has fallen even faster, a combination that has forced freight into its current trough.

“This is likely to be the first time in memory that truck tonnage doesn’t lead the macroeconomy out of a recession,” Costello said. “Today, many new product orders can be fulfilled with current inventories, not new production, thus suppressing truck tonnage.”

“There is too much inventory out there, certainly at the manufacturing level and certainly at the wholesale level,” he added. “Retailers aren’t quite as bad, because they are requiring manufacturers and wholesalers to hold the inventory.”

Robert W. Baird analyst Jon Langenfeld had a different view, because inventories have been depleted to a level not seen in two decades.

That situation sets the stage for needed inventory replenishments that will stimulate demand for trucking service, Langenfeld said in a July 27 report. The potential pickup, coupled with continuing reductions in supply through bankruptcies and fleet downsizing, are bringing supply and demand for trucking more into balance, he said.

“Though inventory liquidation is still ongoing, we believe the industry has moved beyond the peak depletion rate for this cycle, which further supports our view that demand trends will not worsen,” he said.

Like Costello, Langenfeld said he believes underlying economic demand will be weak through the first half of next year.

The weakness in freight mar-kets continued to reverberate throughout the industry, multiple reports showed.

Earnings results for Paccar Inc. and Daimler AG’s truck unit were announced last week. Paccar, the U.S.-based maker of Peterbilt and Kenworth tractors, reported profits fell 92% below last year, to

$26 million. German vehicle manufacturer Daimler said its trucking unit reported an operating loss of 508 million euros, or $692.4 million, for the second quarter including one-time charges, compared with a 608 million euro profit last year. Cummins earnings also declined, dropping 81% from its record second-quarter profit of $293 million last year.

A report from consulting firm FTR Associates gave little encouragement to truck manufacturers, whose sales are at 25-year lows. FTR President Eric Starks reduced his forecast for 2010 tractor sales by 12%, citing the expected slow freight recovery.

ACT Research, which forecasts trailer market trends, said trailer orders declined in June after showing improvement earlier in the quarter.