June Truck Tonnage Jumps 5.4% in Eighth Straight Gain
By Rip Watson, Senior Reporter
This story appears in the Aug. 4 print edition of Transport Topics
The U.S. economic stimulus package and inventory replenishment by customers powered a 5.4% rise in truck tonnage during June compared with last year, the eighth consecutive monthly increase, American Trucking Associations said.
As some carriers begin to detect signs of a stronger market triggered by tighter capacity, ATA’s seasonally adjusted index rose to 116.5 from 110.5. The growth pace was the fastest since an 8.9% rise in January 2005. Tonnage has been rising since November, after falling for eight of the first 10 months of last year.
“Trucking is a good leading economic indicator,” said ATA Chief Economist Bob Costello, who credited the stimulus package and inventory effects for boosting tonnage.
“The fact that we are growing now and the U.S. economy is sluggish is not usual. This would indicate that things could improve for the U.S. economy down the road.”
However, he cautioned, “We are going to be watching truck tonnage very closely to see if there are any hiccups over the next couple of months, which would indicate the U.S. economy will be weaker than anticipated late this year and early next year.”
“If truck volumes turn out to be the leading indicator for the economy that they have been in many past cycles, that would speak to a longer but shallower than normal economic downturn,” said Ed Wolfe, an industry analyst and founder of Wolfe Research.
“Both general macroeconomic and freight trends tend to point towards a continued weak — but no longer weakening — economy as recent monetary and fiscal stimulus have to some degree likely helped hold up demand thus far.”
For truckers and other businesses that were caught in the swirl of fast-rising fuel prices, the latest economic indicators also sent mixed signals. The stimulus package helped the U.S. economy to grow at a 1.9% pace last quarter, better than the 0.9% rate in the first quarter, the Commerce Department said.
However, the economic growth rate lagged the average 2.3% forecast of economists polled by Bloomberg News and initial jobless claims reached 448,000 last week, 10% more than the prior week, as continuing claims rose to 3.28 million.
A number of carriers said in second-quarter earnings announcements that they were seeing some positive signs.
“In our view, the freight market improved somewhat during the quarter, showing the first signs of improvement in nearly two years,” said David Parker, chief executive officer of Covenant Transportation Group. “Demand improved seasonally, but was not robust.
Industry-wide capacity seemed to grow a bit tighter as the quarter unfolded. We are expecting continued steady improvement in the relationship between capacity and demand during the third quarter of 2008.”
Marten Transportation Chief Executive Officer Randy Marten also said, “We expect freight demand to continue to improve somewhat.”
Werner Enterprises “experienced improving freight demand over the last five weeks of second quarter 2008.”
“Beginning with the fourth quarter of 2007, the trend of ABF’s year-over-year quarterly tonnage changes has steadily improved, though in very small increments,” said Robert Davidson, chief executive officer of Arkansas Best Corp., whose ABF Freight System unit boosted tonnage 0.9% in the second quarter.
The steady rise in tonnage is beginning to rejuvenate the rate picture for fleets, said Wachovia Securities analyst Justin Yagerman.
“As a result of the significant pickup in truck tonnage during June (up 1.3% sequentially from May) as well as continued capacity reductions, carriers experienced spot pricing power during June, marking one of the few times since 2006 where this market experienced tightness,” he said. “A modest improvement in demand or further capacity reductions will create a strengthening truck pricing environment for the carriers.”
Eric Starks, president of the consulting firm FTR Research, said he believes 470,000 trucks were idle in the second quarter, compared with 380,000 at the same time last year.
He said he believes tonnage levels are stabilizing and are not growing as fast as ATA’s index indicates.
ATA’s tonnage measure is inflated because larger carriers that participate in ATA’s survey have gained business that was hauled by now-closed smaller carriers that didn’t participate in the survey, Starks said.
“The ATA data is sending a false positive message,” he said. “We know there have been a large number of bankruptcies in the last few quarters. People are parking their trucks and walking away. That is helping the [ATA] number because the people who tend to get that freight are the bigger companies that report to ATA.”
Costello disputed Starks’ view, saying ATA’s survey process accounts for the effects of recent bankruptcies.
Future fuel prices also will play a key role in how far and how fast industry demand recovers, experts said.
Lower pump prices for gasoline would boost consumers’ disposable income, which would in turn spur retail sales and boost demand for trucking, Costello said.
He believes the stimulus checks of $600 or $1,200 helped to raise demand and spending. Inventory replenishment from historically low levels is mostly a separate issue, he said, though higher consumption could have lowered retail inventories.
Starks said truckers can benefit even if fuel costs stabilize with crude oil prices at $120 a barrel because the absence of price swings will allow fleets to adjust their operations and keep surcharge collections in balance with diesel costs.
This story appears in the Aug. 4 print edition of Transport Topics
The U.S. economic stimulus package and inventory replenishment by customers powered a 5.4% rise in truck tonnage during June compared with last year, the eighth consecutive monthly increase, American Trucking Associations said.
As some carriers begin to detect signs of a stronger market triggered by tighter capacity, ATA’s seasonally adjusted index rose to 116.5 from 110.5. The growth pace was the fastest since an 8.9% rise in January 2005. Tonnage has been rising since November, after falling for eight of the first 10 months of last year.
“Trucking is a good leading economic indicator,” said ATA Chief Economist Bob Costello, who credited the stimulus package and inventory effects for boosting tonnage.
“The fact that we are growing now and the U.S. economy is sluggish is not usual. This would indicate that things could improve for the U.S. economy down the road.”
However, he cautioned, “We are going to be watching truck tonnage very closely to see if there are any hiccups over the next couple of months, which would indicate the U.S. economy will be weaker than anticipated late this year and early next year.”
“If truck volumes turn out to be the leading indicator for the economy that they have been in many past cycles, that would speak to a longer but shallower than normal economic downturn,” said Ed Wolfe, an industry analyst and founder of Wolfe Research.
“Both general macroeconomic and freight trends tend to point towards a continued weak — but no longer weakening — economy as recent monetary and fiscal stimulus have to some degree likely helped hold up demand thus far.”
For truckers and other businesses that were caught in the swirl of fast-rising fuel prices, the latest economic indicators also sent mixed signals. The stimulus package helped the U.S. economy to grow at a 1.9% pace last quarter, better than the 0.9% rate in the first quarter, the Commerce Department said.
However, the economic growth rate lagged the average 2.3% forecast of economists polled by Bloomberg News and initial jobless claims reached 448,000 last week, 10% more than the prior week, as continuing claims rose to 3.28 million.
A number of carriers said in second-quarter earnings announcements that they were seeing some positive signs.
“In our view, the freight market improved somewhat during the quarter, showing the first signs of improvement in nearly two years,” said David Parker, chief executive officer of Covenant Transportation Group. “Demand improved seasonally, but was not robust.
Industry-wide capacity seemed to grow a bit tighter as the quarter unfolded. We are expecting continued steady improvement in the relationship between capacity and demand during the third quarter of 2008.”
Marten Transportation Chief Executive Officer Randy Marten also said, “We expect freight demand to continue to improve somewhat.”
Werner Enterprises “experienced improving freight demand over the last five weeks of second quarter 2008.”
“Beginning with the fourth quarter of 2007, the trend of ABF’s year-over-year quarterly tonnage changes has steadily improved, though in very small increments,” said Robert Davidson, chief executive officer of Arkansas Best Corp., whose ABF Freight System unit boosted tonnage 0.9% in the second quarter.
The steady rise in tonnage is beginning to rejuvenate the rate picture for fleets, said Wachovia Securities analyst Justin Yagerman.
“As a result of the significant pickup in truck tonnage during June (up 1.3% sequentially from May) as well as continued capacity reductions, carriers experienced spot pricing power during June, marking one of the few times since 2006 where this market experienced tightness,” he said. “A modest improvement in demand or further capacity reductions will create a strengthening truck pricing environment for the carriers.”
Eric Starks, president of the consulting firm FTR Research, said he believes 470,000 trucks were idle in the second quarter, compared with 380,000 at the same time last year.
He said he believes tonnage levels are stabilizing and are not growing as fast as ATA’s index indicates.
ATA’s tonnage measure is inflated because larger carriers that participate in ATA’s survey have gained business that was hauled by now-closed smaller carriers that didn’t participate in the survey, Starks said.
“The ATA data is sending a false positive message,” he said. “We know there have been a large number of bankruptcies in the last few quarters. People are parking their trucks and walking away. That is helping the [ATA] number because the people who tend to get that freight are the bigger companies that report to ATA.”
Costello disputed Starks’ view, saying ATA’s survey process accounts for the effects of recent bankruptcies.
Future fuel prices also will play a key role in how far and how fast industry demand recovers, experts said.
Lower pump prices for gasoline would boost consumers’ disposable income, which would in turn spur retail sales and boost demand for trucking, Costello said.
He believes the stimulus checks of $600 or $1,200 helped to raise demand and spending. Inventory replenishment from historically low levels is mostly a separate issue, he said, though higher consumption could have lowered retail inventories.
Starks said truckers can benefit even if fuel costs stabilize with crude oil prices at $120 a barrel because the absence of price swings will allow fleets to adjust their operations and keep surcharge collections in balance with diesel costs.
