Monthly Tonnage Barely Rises; ATA Sees Stronger Growth in ’16

This story appears in the Jan. 4 print edition of Transport Topics.

American Trucking Associations’ latest tonnage and economic reports show that late 2015 freight growth was weighed down by bloated inventories but that some improvement is expected this year with stronger support from consumer spending.

Just before Christmas, the trade group announced that November tonnage rose just 0.2% compared with that month in 2014. It was the smallest monthly increase in nearly three years. The seasonally adjusted index declined 0.9% in November from October, settling at 134.3. ATA uses business activity from 2000 as a base of 100.

Year-over-year index growth decelerated throughout 2015, after a 4.7% first-quarter increase and a 2.1% second-quarter gain.

“With year-over-year gains averaging just 1.2% over the last three months, there has been a clear deceleration in truck tonnage,” ATA Chief Economist Bob Costello said. “Tonnage gave back half of the gain in October, highlighting weakness in factory output and new fracking activity, as well as a glut of inventories throughout the supply chain.”

Inventories, which are at the highest level since the recession, will be a negative factor over the next few months, Costello said, while offering a more upbeat assessment the year as a whole.

“I think the industry can do pretty well in 2016,” he said. “We see the supply chain clearing some of the inventories.”

Another December report from ATA noted that 2015 tonnage growth will be below 3% for the first time since 2012 and only the second time since freight growth resumed after the recession. The new report forecast tonnage growth at 2% to 3% this year as consumer spending growth of up to 3.2% leads a modestly improving economy.

One sign of the relative market weakness late in 2015 was Knight Transportation’s late December statement that fourth-quarter earnings will be about 15% below its earlier forecast, due to more moderate rate increases, fewer spot market opportunities, additional driver pay increases and reduced gains on used equipment sales.

Knight, which ranks No. 31 on Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers, lowered its forecast to about 32 cents a share from about 38 cents. Last year’s fourth-quarter earnings were 40 cents a share as spot markets were strong. Most of the earnings shortfall was tied to a freight market where capacity wasn’t as tight as in 2014.

Knight’s announcement was “not a total surprise” to BB&T Capital Markets analyst Thom Albrecht, who said in an investor note that the weaker market was affecting the entire truckload sector.

The latest reports from load board operators DAT Solutions and Truckstop.com illustrated the situation.

DAT, for example, noted that spot market loads in November were 60% lower than in 2014.

Truckstop.com’s index of December load board activity, published Dec. 28, remains about 40% lower than the same month of last year.

Recent commentary also had some pessimistic notes.

Steve Graham, a vice president at consultant FTR Associates, worried about the world economy, saying in a report that “although the U.S. economy is in pretty good shape, there are questions whether it can weather a global recession.”

His report said that “there are a lot of concerns about China and its links to other emerging economies,” which are weighed down by debt and commodity prices at 19-year lows.

“Some sectors are doing well and others [energy, manufacturing] not so well,” Costello said. “The good news is that the largest part of our economy looks good: consumer spending.” Consumer spending is usually about 66% to 70% of gross domestic product.

The ATA report predicts growth in employment levels and wages this year and said that would be a major factor leading to higher consumer spending.

Specifically, the forecast calls for GDP growth of 2.6% to 2.8% this year, up from 2.5% in 2015. Manufacturing growth of 1.7% to 1.9% is expected, compared to 2.2% last year. Housing starts could rise to as much as 1.3 million from 1.1 million.

For fleets, truckload volume growth is forecast to rise 1.5% to 2.5%, topping 2015’s 1.3% growth. Less-than-truckload tonnage, at best, will match last year’s 1.5% growth.

The net result is a 2016 freight market where capacity could be somewhat tighter as concerns continue about driver supply and wage increases, which approached 20% for some truckload operators since mid-2014.

“It will be difficult for fleets to continue to build capacity, as any acceleration in freight volumes will suck up any slack capacity,” the ATA report said. “The driver market remains fairly tight and will get worse once freight volumes pick up. Don’t be surprised if pay increases significantly again in 2016.”

The trade group’s raw tonnage index, before seasonal adjustment, fell 7.6% in November from the October reading and was 2.5% above the November 2014 result.