Truck Tonnage Dips in Sept., but Economy Shows Gains

This story appears in the Nov. 2 print edition of Transport Topics.

The freight recovery paused in September as American Trucking Associations’ tonnage index dipped 0.3% from the month be-fore after recording larger gains in July and August.

The seasonally adjusted index was down 7.3% from a year earlier. That year-to-year gap was the smallest since November last year, but it was the 12th consecutive month that the index trailed the year-earlier period.

However, the U.S. economy grew at a 3.5% annual rate in the third quarter, indicating the potential for freight improvement in coming months.

“The third quarter GDP reading was encouraging,” said ATA economist Tavio Headley, who noted that most of the increase resulted from the federal auto buyers’ rebate program and a decline in inventories.

“The trucking industry should not be alarmed by the very small decrease [in the tonnage index] in September,” ATA Chief Economist Bob Costello said Oct. 23. “We took two steps forward in July and August, and this was a minuscule step backward.”

The Commerce Department’s Oct. 29 report of a strong gain in gross domestic product recorded the first increase in four quarters and followed a 0.7% drop in the second quarter.

“Between most economic indicators recovering and less of an overhang in inventories, I’m confident that the industry is still on the road to recovery,” Costello said.

Among those positive indicators was the improvement in a ratio of inventory relative to sales, which posted the best performance in nearly a year.

Freight volumes last rose on a year-over-year basis in September 2008, when the index stood at 112. That month typically starts the fall peak shipping season, which was missing last year.

Costello said he believes modest tonnage improvement will be a trend, but he cautioned there will be “ups and downs in the months ahead.” The freight decline in September followed an August index of 104.1 that reached the highest level in six months and was an improvement of about 5% from the April index, which was at the lowest level in 13 years.

Mixed signals appeared in other trucking indicators, economic reports and comments from some fleet executives.

While ATA’s index dipped slightly, load-board operator TransCore said its spot-market freight index rose 9% in September from August but still trailed last year by 14%.

The Conference Board’s index of leading economic indicators rose in September, marking the sixth consecutive increase in an index that forecasts national economic activity three to six months ahead.

Single-family housing starts also have perked up, and in September were only 9% below that month last year. However, the cumulative decline this year from 2008 stands at 28%, according to the Oct. 23 report.

On the other hand, the Conference Board said on Oct. 27 that consumer confidence fell in October.

Meanwhile, less-than-truckload operators Saia and Arkansas Best Corp.’s ABF Freight System said during conference calls that October tonnage was weaker than in September, while Vitran Corp.’s CEO Rick Gaetz said the company’s October tonnage would exceed the year-ago level. He called the positive comparisons “a very encouraging step.”

“I anticipate a fourth-quarter freight environment with stable demand and no further degradation in pricing,” said Henry Gerkens, chief executive of Landstar System.

“The growth in trucking volumes will be moderate and inconsistent since industrial output and household spending are still soft,” Headley said. He cautioned that while GDP growth should continue that it’s likely to slow because of head winds faced by consumers, including high unemployment and tight credit.

Credit Suisse analyst Christopher Ceraso said in an Oct. 23 note that modest improvements in recent economic indicators have led him to modify his 2009 freight forecast to a year-over-year decline of 10.1%, rather than 10.7%.

For next year, Ceraso predicted freight would drop 0.8% from 2009, an improvement from the 1.7% drop he had projected from weak totals so far this year.

A key reason for the decline, he said in his report, was weakness in the residential market that includes new home construction and improvements that continue to trail far behind 2008 levels.

Without seasonal adjustment, tonnage rose 2% from August to September to an index reading of 107.9, ATA reported.

The economic weakness in ATA’s index, which fell about 9% year-over-year, was reflected in third-quarter earnings for publicly traded freight companies. Nearly every motor and rail carrier recorded worse results this quarter than in the 2008 period.

Logistics and brokerage operator C.H. Robinson Worldwide managed to raise earnings 2% to $95.5 million in the quarter. Improved results in its truck segment, which accounted for 85% of profits before administrative expense, were attributed to lower rates paid for transportation capacity and reduced fuel expenses.

Among carriers, only Saia reported year-over-year earnings growth, which was linked to savings on vacation and other personnel-related costs. Covenant Transportation Group Inc. narrowed its quarterly loss, excluding a one-time asset-impairment charge.