March Freight Dips; First Decline Since October

By Rip Watson, Senior Reporter
This story appears in the May 5 print edition of Transport Topics.
A report that truck tonnage declined in March provided new evidence that the U.S. economy is still weak, amid more signs that manufacturing and consumer spending will generate less freight for trucking to move in months to come.
American Trucking Associations’ seasonally adjusted tonnage index slipped 0.2% in March from a year earlier, ending a four-month string of gains; the 3.3% drop from February was the largest monthly contraction since August 2006.
“I’ve been concerned that the recent run-up in tonnage might not be sustainable, and clearly March’s figures confirmed that apprehension,” said Bob Costello, ATA’s chief economist. “The tonnage drop might suggest that the pullback in the economy could be more severe than previously thought.”
“Truck tonnage often leads both recoveries and recessions, and the latest contraction suggests the economy and trucking are not out of the woods yet,” Costello said.
Anemic economic growth and consumer spending, rising unemployment and signs of more contraction in manufacturing helped prompt the Federal Reserve to cut interest rates again last week.
Also last week, the Commerce Department said gross domestic product inched up just 0.6% in the first quarter, matching the fourth quarter’s weak growth rate.
Hoping to pump up the economy, the Federal Reserve cut short-term interest rates, saying that “economic activity remains weak” because household and business spending were subdued and labor markets were softer. However, it indicated the ¼-point trim on April 30 to 2% may be the last for now.
The Fed’s mid-April Beige Book report on economic conditions said freight activity was weak or sluggish in key markets such as New York, Dallas and Atlanta.
The Institute for Supply Management’s manufacturing index in April registered 48.6, a sign of economic contraction since the index tops 50 when growth is occurring.
Meanwhile, consumer spending barely grew in March, with higher gasoline and food prices accounting for most of the increase and little left to buy durable goods. And the jobs picture remained bleak, with the Labor Department re-porting that unemployment rose to 5.1% in March and that 3 million Americans were receiving unemployment benefits, the most in four years.
“It is becoming increasingly more apparent that the domestic economy is not rebounding,” said Credit Suisse analyst Jason Seidl. “Coupling this with record high diesel prices, it is no wonder volumes are less than stellar.”
Along with the gloomy news, there were some possible signs that freight could be increasing, as brokerage activity measured in loads grew.
TransCore, a freight-matching service, said its load-to-truck index reached 3.76, the highest level in nine months, a sign that nearly four loads were posted for each available truck. Loads posted were 40% higher in March than February, while postings of trucks fell 7%. In March of last year, the load-to-truck index was 2.41.
“The fact that we didn’t see a significant decline in equipment postings from month to month would indicate the current load-to-truck ratio is more about an increase in volume than a reduction in equipment,” said TransCore Vice President David Schrader.
Capacity is tightening because carriers are trimming their fleets and because of the possibility that brokers are getting cheaper rates on the spot market than they have in contracts with carriers, Schrader said.
“There has been a definite turn of the tide,” agreed Chip Smith, president of freight broker Twin Modal Inc. “We are having a lot more trouble finding trucks for the loads. We had shippers beating us over the head looking for reductions in rates right through the middle of March. I wouldn’t go so far as to say the entire country is seeing a surge in volume, but it’s stronger than it was earlier in the year.”
Volume grew fastest in the Midwest, Southeast and Texas, Smith said, increasing Twin Modal’s traffic by 10%.
However, Costello cautioned against reading too much into the increased activity that brokers and load-boards noted.
Costello said ATA’s tonnage index measures weight and not the number of loads. “It is not unusual for one to increase in a given month and for the other to decrease.”
Indications of possibly growing demand came too late to help first-quarter trucking company earnings, as profit fell for nearly all motor carriers.
In a typical comment, Robert Weaver, president of P.A.M., said “results for the current quarter are humbling and are reflective of the continued economic weakness in truckload freight demand and upward volatility of fuel.” The carrier announced a first-quarter loss of $2.83 million compared with a $1.26 million profit a year earlier.
“We are still trying to find a bottom,” Avondale Partners LLC analyst Donald Broughton said. “It looks to me like the rate of deceleration in truck tonnage is slowing. Things are not getting worse at the same rate that they were throughout 2007 and early in 2008.”