story by Michael Tilley
Three groups that track the U.S. transportation sector – a bellwether for the U.S. economy – suggest uneven patterns will continue and the “wobbly nature” of recent economic trends will become “more pronounced.”
The American Trucking Associations’ Truck Tonnage Index rose just 0.1% in June after a 2.1% rise in May. Year-to-date, the index is up 4.7% compared to the same period in 2012.
The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, equaled 125.9 in June, which was 5% below the previous month.
“The fact that tonnage didn’t fall back after the 2.1% surge in May is quite remarkable,” ATA Chief Economist Bob Costello said in a statement. “While housing starts were down in June, tonnage was buoyed by other areas like auto production which was very strong in June and durable-goods output, which increased 0.5% during the month according to the Federal Reserve. … The trend this year is heavy freight, like autos and energy production, is growing faster than lighter freight, which is pushing truck tonnage up.”
Trucking serves as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods, according to the ATA. Trucks hauled 9.2 billion tons of freight in 2011. Motor carriers collected $603.9 billion, or 80.9% of total revenue earned by all transport modes.
‘UP AND DOWN TRACK’
The Cass Freight Index for June was up 0.9% compared to May, but down 1.5% compared to June 2012.
“The transportation sector continues to follow the up and down track it’s been on for the last two and half years. The economy in general has exhibited more favorable trends in the last month, which should boost activity for the transportation industry over the next several months,” explained Rosalyn Wilson, a supply chain expert and senior business analyst with Vienna, Va.-based Delcan Corp., who provides economic analysis for the Cass Freight Index.
Cass uses data from $22 billion in annual freight transactions processed by its information processing division to create the Index. The data comes from a Cass client base of 350 large shippers.
Wilson said domestic and global economic reports indicate that consistent economic growth patterns are unlikely.
“Despite the fact that the economy, both domestically and globally, shows no real signs of change other than more of the up and down movements we’ve been watching for close to three years, the transportation sector should experience some noticeable trends. These trends will probably be of the wobbly nature we have become accustomed to, but more pronounced,” Wilson wrote.
She also expects the new hours-of-service rules to impact the entire U.S. economy, “as virtually all products are moved on a truck at some point.” The new rules increase restrictions on how long and when drivers can operate a truck. Wilson said the new driver rules and a driver shortage are likely to increase shipping rates. Higher shipping rates often translate into higher shelf prices.
“Projections are that the driver shortage could climb to 100,000 by year end, pushing up wages and benefits to attract and retain drivers. Given that we are already at or close to a one hundred percent turnover rate for drivers, these labor costs could rise quickly as qualified drivers jump companies in search of better pay,” WIlson estimated. “Rail intermodal will serve as a pressure valve, absorbing more freight, but truck shortages will begin to manifest as we enter the traditional holiday shipping period, pushing up rates.”
Brad Delco, a transportation industry analyst for Little Rock-based Stephens Inc., said freight volumes were lower than expected during the second quarter, with improvements seen in late June.
“Heading into 2Q'13 truckload earnings, we see little to write home about as the freight environment for the most part remained relatively balanced from a supply / demand perspective,” Delco wrote in a July 16 trucking industry earnings preview. “However, after a rough start, with April demand trends lagging year-ago levels, we did see modest sequential improvement in May with late June trends that accelerated to levels above prior-year levels.”
INDUSTRY CHALLENGES CONTINUE
Delco also thinks the truckload sector “remains challenged” with driver shortages, difficulty in raising shipping rates and the hours-of-service rule changes.
In the note, also authored by associate analyst Ben Hearnsberger, Delco made the following observations.
• Freight volumes were mostly lower than expected in the quarter though we have heard that the last two weeks of June were significantly better.”
• Difficult weather conditions were likely the culprit early in the quarter, but improving weather led to tightening capacity later in the quarter as seasonal freight picked up (home and garden, beverage and produce).
• Our private checks have indicated that the last couple of weeks in June were significantly better on a year-over-year basis with strength evenly spread out across the country, except for the Pacific Northwest.
• All things combined, we believe shipment volumes were incrementally lower in 2Q than expected which should negatively impact utilization.