Freight Reports Positive About U.S. Economy, But Suggest Mixed Signals

Two closely watched freight reports indicate positive movement in the U.S. economy, but also note that “signals are still mixed,” and that truck tonnage gains in 2014 are not likely to be as strong as they were in 2013.

The American Trucking Associations’ Truck Tonnage Index was up just 0.6% in March after a 1.9% gain in February. For the first quarter of 2014, the index is up 2.3% compared to the same period in 2013, but was down 2.5% compared to the fourth quarter of 2013.

The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, was 12.1% below the previous month.

“Tonnage continued to claw its way out of the hole that was dug in December and January,” ATA Chief Economist Bob Costello said in his monthly report. “However, with a cumulative gain of 2.5% during the last two months, we still have a way to go to offset the total loss of 5.2% in December and January.”

Trucking serves as a barometer of the U.S. economy, representing 68.5% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods, according to the ATA. Trucks hauled 9.4 billion tons of freight in 2012. Motor carriers collected $642.1 billion, or 80.7% of total revenue earned by all transport modes.

Trucking industry fundamentals “look good,” but the pace of growth seen in 2013 may not continue into 2014.

“While it will take time to regain what was lost due to weather and other factors, like a potential inventory correction in the first quarter, I remain optimistic for 2014; however, don’t expect a 6.3% annual gain in truck tonnage like during 2013,” Costello explained.

The Cass Freight Index reported that shipments were up 0.4% compared to March 2013, but up 6.6% compared to February.

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.

Rosalyn Wilson, a supply chain expert and senior business analyst with Vienna, Va.-based Delcan Corp., also noted in the Cass Freight report for March her uncertainty about the pace of growth in 2014.

“All in all, lots of strengthening in the economy, but taking everything into consideration the signals are still mixed. It will be interesting to see if we can continue to climb up or if we will keep with the trend of recent years and stumble in the second quarter,” Wilson noted.

Wilson’s report included the following points:

• “Shipment volume and total freight payments continued to climb in March, ending the first quarter of the year on a high note. Bad weather continued to plague many parts of the country, but transportation seemed to be less affected than in January and February.”

• “The number of shipments was 0.4 percent higher than last March and 4.6 percent higher than in March of 2012. Railroad carloads rose fairly steadily throughout March, up over 5 percent, while intermodal loadings increased over 3 percent. Truck traffic has also been picking up after falling for the first two months of the year.”

• “New (manufacturing) orders, a bellwether of future freight, rose again in March, up 1.1 percent, after plunging dramatically just two months ago. The backlog of orders jumped 10.6 percent, another indicator that freight volumes should be growing in coming months. Freight volumes in the first quarter were up over 10 percent over Q4 2013, showing the strongest start of the last few years, but it remains to be seen whether the number of shipments will follow the trends of recent years and falter in the second quarter.”

• “Manufacturing and production have turned a corner and are back in expansion mode. Strong new orders and backlog figures bode well for the freight sector. Imports were up in February, especially for autos and parts. Sales of cars and pickup trucks – which are considered a harbinger of recovery in the construction sector – rose sharply in March.”

• “The labor picture appears to be strengthening on the surface, with 192,000 jobs added last month, but Gallup’s measure of the percentage of the adult population that is employed full time (at least 30 hours a week) dropped to 42.7 percent, just slightly above the low point in February 2011. Gallup also puts the seasonally adjusted unemployment rate at 7.5 percent, compared to the Bureau of Labor Statistics’ (BLS) 6.7 percent (the Gallup figure includes the so‐called discouraged workers that fall off the BLS rolls.) Private‐sector payrolls are now higher than in December 2007, the start of the Great Recession.”

Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., noted in a March 26 investor note on the less-than-truckload (LTL) industry that tonnage gains should bode well for companies like Fort Smith-based ABF Freight System – a subsidiary of Arkansas Best Corp.

Delco wrote that “tonnage has been stronger than previously expected in 1Q assuming that March plays out well (which indications have suggested they have), and we think commentary regarding this on the earnings calls can help to buoy LTL stocks despite lower-than-expected earnings due to weather.” In the note, which also included support from Stephens’ associate analyst Ben Hearnsberger, Delco said the LTL industry should also benefit from improved pricing.

“Per updates from LTLs at industry conferences and our private company channel checks we believe that tonnage levels have accelerated throughout the quarter and that core contractual pricing for most of the industry has remained strong,” he wrote.

Arkansas Best is scheduled to announce first quarter earnings on May 1.