Tonnage Rises From Jan. Levels, but Feb. Volume Trails Year-Ago

This story appears in the March 30 print edition of Transport Topics.

Truck tonnage in February dropped 9.2% from year-ago levels, but inched up 1.7% from the low totals in January, American Trucking Associations reported last week.

That news, coupled with improvement in a few other economic in-dicators, inspired some business executives and economists to ponder whether the economy and freight volumes have hit bottom.

The week’s economic news was mixed, with durable goods orders and house sales positive but production and employment down sharply.

Even though some analysts said they thought the economy and the freight market had hit bottom, most observers were cautious, saying a true upturn in business was months away, at best.

“It is too early to say the economy or trucking has hit bottom,” said Bob Costello, chief economist for ATA.

“Just because tonnage rose again in February [after rising in January] doesn’t mean the economy is on the mend. Tonnage plunged again on a year-over-year basis, which highlights the current weakness in the freight environment,” Costello said.

ATA’s advanced seasonally adjusted index for February was 106.5, marking the second consecutive increase after a 3% rise in January. But the recent gains did not make up for December’s drop below 100.

Other economic indicators were mixed. Durable goods orders rose 3.4% last month from January, but fell 22% from last January’s level, the Commerce Department reported March 24.

Costello said he believed indicators such as durable goods are reflected in the most recent tonnage report.

New-home sales and mortgage applications rose in reports last week, as recent moves by the Federal Reserve forced interest rates down.

Analysts told Bloomberg News they thought the reports were a signal the economy had bottomed.

However, the Labor Department said March 26 the number of people collecting unemployment benefits jumped 122,000 to a record of 5.56 million.

“Believe me, I’d love to be optimistic,” Costello said, “but I haven’t seen enough improvement in either economic or trucking activity to say we are on the road to recovery. It will come eventually, but I doubt it is happening just yet.”

Some executives said they believe the bottom is actually here.

“I think we are at the bottom,” said Keith Tuttle, president of Motor Carrier Service Inc., Northwood, Ohio, a fleet that carries products such as cleaning chemicals and plastics. “We think we are starting to see signs of an uptick. There is a little bit of optimism from some of our customers.”

Rick Wagoner, chief executive officer of General Motors Corp., told Bloomberg on March 19, “It does feel like, absent some other financial catastrophe, we are bumping along the bottom.”

Some economists agreed.

“Our forecast is that the U.S. economy is at the bottom, but we’ve been wrong before,” said Paul Bingham, managing director, trade and transportation, for IHS Global Insight. “February was the nadir.”

“Things will stop getting significantly worse,” Bingham said. “It doesn’t mean that the levels of activity are healthy. We have just halted the accelerating deterioration.”

Bingham predicted the recession would end by the fourth quarter of 2009.

Other analysts were cautious, or pessimistic, about tonnage trends as the year unfolds.

“Despite a few inferences that freight volumes are seeing moderating declines and/or even establishing a floor, nothing suggests any sort of measurable recovery,” said Thom Albrecht, a Stephens Inc. analyst, in a March 26 investor note.

Albrecht highlighted the 13% drop in tonnage unadjusted for seasonal patterns, and the 11% drop in industrial production last month, which he said was “awful.” Industrial production now has fallen for 13 straight months.

Costello said he expects trucking to hit bottom before the overall economy, which he doesn’t expect to reach that point until late in the third quarter, at the earliest.

Chris Ceraso, an analyst at Credit Suisse, envisioned a 14% year-to-year drop in first-quarter tonnage — with the second and third quarters even worse — before comparisons with last year moderate to an 8.5% drop in the fourth quarter.

“It looks like we’re about halfway through the current contraction,” Ceraso said.

Stifel, Nicolaus & Co. analyst David Ross said in an investor note that less-than-truckload carriers’ “best possibility” for year-over-year tonnage growth would be the fourth quarter.

Other freight metrics were even worse than trucking.

Rail intermodal freight volumes through February plummeted 19%, while carload freight fell 15%, the Association of American Railroads said. Weekly traffic in March continued the double-digit falloff.

Container shipments at Los Angeles and Long Beach, Calif., the two largest U.S. ports, fell about 25% in the first two months of 2009.

“It is just a very, very weak market right now,” said John Hickerson, chief marketing officer at Frozen Food Express Industries. “It’s probably as bad as I’ve seen it in terms of sheer lack of demand and excess capacity. It’s not real pretty; we’re sort of riding it out.”

Senior Reporter Sean McNally contributed to this report.