Truck Tonnage Weakens in April
This story appears in the June 1 print edition of Transport Topics.
The drop in U.S. truck tonnage accelerated in April, plunging 13.2% below the same month in 2008 to the lowest level since November 2001 — just after the 9/11 terrorist attacks — American Trucking Associations reported last week.
Leaders from both of the industry’s major sectors — truckload and less-than-truckload — described business conditions as very poor. Separately, a group of U.S. business economists revised their forecast to say that while the recession should end in the summer, significant recovery probably will not take hold until next year.
The ATA tonnage index dropped to 99.2 in April, compared with 114.2 a year earlier. In March, the index stood at 101.4, or 12.2% below the year-ago figure of 115.5 (click here for previous story). The seasonally adjusted index compares business activity with a base level of 100 for conditions in 2000.
ATA Chief Economist Bob Costello said the April collapse was the worst the index had recorded in
13 years, and that the industry is enduring a pounding because of the recession and a “massive” correction in inventory levels.
“The absolute dollar value of inventories has fallen, but sales have decreased as much — or more, which means that inventories are still too high for the current level of sales,” Costello said.
“Carriers are hanging in there, just trying to pay their bills. Every load counts now,” said Kevin Burch, president of Jet Express, Dayton, Ohio. Burch is also chairman of the Truckload Carriers Association and said after a May 27 officers’ meeting that “all groups are relatively flat, and no particular division is doing outstanding.”
Burch said flatbed carriers usually experience recovery first because of the kinds of goods they haul, “but we’re not seeing that now.”
Looking at monthly volumes sequentially, rather than year-over-year, Michael Moran, chairman of the Distribution & LTL Carriers Association, said he does not see tonnage getting worse or better, but described an erratic environment instead.
“You’ll have a great day one day, and the phones will be dead the next. You pounce on an order as quickly as you can, so you can turn it around as an invoice as quickly as possible,” said Moran, vice president of Moran Transportation & Distribution, Elk Grove Village, Ill.
Most smaller less-than-truckload carriers have experienced such severe tonnage problems over the past year that it has induced substantial price cutting, Moran said.
“In past recessions, different customer groups seemed recession-proof, but this one has affected almost every customer category across the board, even food service and pharmaceuticals,” he said. “Pricing frustrates me to no end. We’ve seen rates cut 10% to 20% by some carriers so they can get some cash flow.
“Everyone’s doing it, and not just the companies that traditionally compete on price. Everyone’s slashing,” Moran said, adding that “it will take years to get back what we’ve lost.”
Meanwhile, The Associated Press reported May 27 that the consensus forecast from the National Association of Business Economists is that the U.S. recession will end during this year’s third quarter — July to September.
The recession started in December 2007, and gross domestic product contracted most sharply from October through March, at an annualized rate of 6.2%. NABE forecasts a decline of 1.8% during the current quarter, but a return to GDP growth during the third quarter at an annual rate of 0.7%.
That should increase to 1.8% a year during the year’s final three months, AP said of the NABE forecast.
The Conference Board, a business research group, said May 21 that its index of leading economic indicators rose by 1% in April, the largest gain in three-and-a-half years. Seven of the index’s 10 components registered an increase.
In looking at freight transportation, though, stock analyst John Larkin told clients of Stifel, Nicolaus & Co. on May 26 that the industry is nearing “the end of the third year of the freight recession, which we believe morphed into a freight depression starting in the fourth quarter of 2008.”
ATA’s Costello said he largely concurred with the NABE forecast, but he does not see truck tonnage improvements coming soon.
“The recession ending is one thing, but actually growing [economic activity] is another,” he said. The first place to look for growth, Costello said, would be in consumer spending, which usually makes up about two-thirds of GDP.
However, unemployment often continues to rise even after GDP starts to grow, so consumers will not be in a good position to resume spending, Costello said.
In looking at inventories, he advised fleet managers to pay careful attention to the inventory-to-sales ratio rather than straight inventory.
“The [inventory-to-sales] ratio ballooned in December of last year and this January. In the last six months, we’ve lost the equivalent of six years of supply chain progress in reducing that ratio,” Costello said.
