Truck Tonnage Drops in October After 11 Consecutive Increases
By Rip Watson, Senior Reporter
This story appears in the Dec. 1 print edition of Transport Topics.
October truck tonnage sank to its lowest level since 2003, dropping 1.8% from a year earlier and ending a streak of 11 consecutive monthly increases over 2007 levels, American Trucking Associations reported.
The seasonally adjusted index fell to 108.9, a 3% decline from September, ATA said. The fourth consecutive month-over-month decline signaled that an already wobbly U.S. economy was taking a turn for the worse, ATA’s Chief Economist Bob Costello said.
“October should be the busiest month of the year, but instead, this October was a fizzle,” Costello said. “The cumulative drop in truck tonnage over the last four months suggests that the economy is likely to contract substantially in the fourth quarter, at least 3%.”
That level of decline — on top of the 0.5% dip in gross domestic product for the third quarter — would mean two consecutive quarters of contraction, which is most economists’ technical definition of a recession. The GDP drop the Commerce Department announced last week was the worst economic performance since the 2001 recession and was fueled by a dramatic fall in consumer spending.
“The latest truck tonnage drop suggests that retailers are very pessimistic for the holiday sales season,” Costello added, noting that October has traditionally been when holiday goods are pumped through supply chains.
Since 2005, however, the peak shipping season has been flattening. The decline accelerated this year, as evidenced by a 6.4% decline in Asian imports handled last month at the ports of Los Angeles and Long Beach, Calif.
ATA data show tonnage has dropped 6.3% since June, including declines of 0.8% in September and 1.9% in August. If not seasonally adjusted, the index rose 3.4% to 119.9 in October.
The tonnage index was at its lowest point since October 2003.
Anecdotal evidence suggests that there is no sign that results in recent weeks were any better.
“My ‘sense’ is freight has been soft in November, too,” Costello said.
Monthly freight volumes slipped 38% in November from October levels, said David Schrader, senior vice president of operations for TransCore Freight Services, a load-matching business.
On a year-to-year basis, November volume was 49% lower than the same month last year, he said. The extent of the declines was magnified by the relatively healthy freight environment at this time last year, he said.
The United States is “very credit-hungry,” Schrader said. “If you can’t get credit, you can’t make products. If you can’t make as many products, you can’t ship as much freight. If you don’t move as much freight, there aren’t as many products to buy. It’s a vicious cycle.”
A freight index published by Internet Truckstop, another load-matching service, showed a drop of about 50% in loads posted over the past two months.
Freight volumes had been in-creasing since November 2007, after tumbling for six of the previous seven months. Earlier this year, month-to-month increases reached 5.2% in January and 5.4% in June, as fleets slashed capacity and spiking fuel prices led to the highest level of bankruptcies in eight years.
The long-term outlook for 2009 does not appear to be better.
During a Nov. 21 conference call, Noel Perry, senior vice president at forecasting firm FTR Associates, predicted a 10% drop in tonnage next year, the worst volume reduction in more than 25 years.
“We are sliding into the worst recession since at least 1982,” said Perry, who formerly was an executive at Schneider National and CSX, two of the largest U.S. freight companies. “There has been cumulative stress on the trucking industry for the past three years, and now at the same time, we have a bad recession.”
The volume drop will lead to stronger competition for market share because traffic levels are falling faster than capacity is being yanked from the market, he said. On average, he expects margins to drop by three percentage points from mid-2008 until mid-2009.
Costello, Perry and Schrader all took pains to say the freight environment isn’t completely bleak.
“We’re seeing a downtick in freight, but we still have a large amount of freight available in our marketplace,” said Schrader, because his company’s service posts millions of loads monthly.
Costello said that the tank truck segment continues to be one of the better-performing industry sectors, though volumes seem to be slowing there, as well.
“There is a broad spectrum of performance in the transportation industry,” Perry said. Fleets that have large freight volumes with discounters, dry food, paper goods and personal care products are doing relatively well, compared with lumber, machinery and steel, he said.
