Truck Tonnage Increases 4.4% in July

By Rip Watson, Senior Reporter

This story appears in the Sept. 1 print edition of Transport Topics.

The July truck tonnage report offered mixed signals about the industry and the U.S. economy, as American Trucking Associations’ index rose 4.4% from weak results a year earlier but declined 0.3% from the June totals.

The seasonally adjusted index for July reached 116.2, increasing for the ninth consecutive month year-over-year and producing a year-to-date gain of 3.6%. The decline month-to-month was the first since April.

“This is the hard part,” said Bob Costello, ATA’s chief economist. “There is real uncertainty out there. Trucking has seen lots of starts and stops in the economy. [Gross domestic product] fell in the fourth quarter and then rose in the next two quarters. There is still a real possibility that the U.S. economy could slip back into recession.”

Economic indicators also have been moving in several directions. For example, the Commerce Department said on Aug. 28 that GDP grew at a 3.3% annual clip, but the most recent index of leading economic indicators for conditions expected in the next three to six months showed a decline of 0.7%.

So far in 2008, Costello said he believes fleets have been struggling in an environment of “very modest growth.”

Stifel Nicolaus analyst John Larkin shared that view, saying in an investor note that “the U.S. economy, though it has avoided a technical recession so far, has seen a significant slowdown in growth.”

He said data show the already weak housing market could be damaged further, that consumer confidence is continuing to deteriorate and an expected slowing in global growth could dampen demand for exports.

“July truck tonnage shouldn’t be a surprise to people who paid attention to second-quarter earnings announcements,” said Dahlman Rose & Co. analyst Jason Seidl. “Most carriers told investors that July was weaker than June. June was a very good month for the trucking industry. Part of that was due to the tax rebates from the economic stimulus package.

“Now we are seeing more normalized economic conditions,” Seidl said. “Retailers aren’t looking for much business in the back half of 2008. Consumers are going to be a little bit gun-shy before they open their wallets again.”

Consumers are struggling with rising prices of fuel, food and other products, as shown by a rise of nearly 10% in the government’s producer price index, which climbed at the fastest rate in 27 years in July.

Another indicator of weaker freight trends was the latest data from Transcore, a load-matching service, which showed a 36% drop in loads, compared with July 2008. That decline could be still another sign of a fall freight cycle that has been flattening instead of following past patterns of a peak during that time, said David Schrader, a Transcore vice president.

Seidl also said the latest truck tonnage report is another sign of no expectations of a fall peak shipping surge for the third consecutive year. Railroads that have consulted with international shipping lines expect weak economic activity this fall, especially with imports, Seidl said.

On a brighter note, the Commerce Department said on Aug. 27 that durable goods orders rose 1.3% in July, which was a sign of relative health for the industrial economy.

Activity in that sector helped to keep the July index close to June 2008 levels, Costello said.

A relatively weak U.S. dollar has boosted exports, and domestic production of steel has increased because the cost of producing the metal overseas and shipping it here has risen steadily. The tonnage index is buoyed by increases in steel shipments because that commodity is heavier than other goods, Costello said.

The recent decline in diesel and gas prices, as well as tighter truck capacity, also could help fleets at a time when freight volumes have been relatively soft, Costello said.

Another question mark is how the Chinese economy will fare following the Beijing Olympics.

Factories in that nation, whose economy has been growing at double-digit rates, largely were closed during the August games. That shutdown raises the prospect that production and freight volumes could accelerate later in the year to make up for lost production, Costello said.

ATA’s report also noted the increase in bankruptcies this year should have limited effects, if any, on the tonnage numbers. ATA said the process of calculating the index takes the failure of companies into account and reflects the fact that other carriers picked up that freight.