U.S. Freight Sector Trends Remain Positive, Capacity Issues Persist

by Michael Tilley ([email protected]) 26 views 

Some reports of the closely watched U.S. freight industry suggest the economy performed well in the first half of 2014, with the only hiccup being a 0.8% decline in the June truck tonnage index reported by the American Trucking Associations.

The ATA Truck Tonnage Index was down in June after a revised 0.9% gain in May. For the first half of 2014, tonnage is up 2.8% compared to the same period in 2013, according to the ATA index.

The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, fell 0.5% below the previous month.

“June was one of those months where the data doesn’t quite match up with the anecdotal reports from fleets,” ATA Chief Economist Bob Costello said in the report. “We had heard the freight volumes were good.”

Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., agrees that the ATA report for June does not match what he sees and hears from the trucking companies he follows. Delco said April and May numbers were strong, with the strength partially a function of demand returning after weather delays earlier in the year.

“June was a very strong month in terms of the carriers I’m talking to. … I’m not hearing of any material weakening in the freight market,” Delco told The City Wire, adding that “things are not bad in the trucking world right now.”

Delco did say the industry is seeing a “governor” on activity related to capacity issues and driver shortages. He also said the capacity shortage in the truckload industry is pushing some business to less-than-truckload (LTL) carriers like Fort Smith-based ABF Freight System. According to the Stephens LTL Yield Index for the first quarter of 2014, LTL tonnage was 12.692 million, ahead of the 11.831 million in the first quarter of 2013.

In his report, Costello said tonnage had increased for four consecutive months prior to June totaling 4.4%.

“Despite the small reprieve in June, the second quarter was much better than the first quarter. Tonnage increased 2.3% from the first quarter, which was the largest quarter to quarter gain since the first quarter in 2013. Compared with the second quarter in 2013, tonnage increased 3.2%, a percentage point better than the first quarter year-over-year increase,” Costello explained.

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.

The equity markets are betting on positive trends in the back half of 2014. For example, shares of Lowell-based J.B. Hunt Transport Services (NASDAQ: JBHT) were recently upgraded by Credit Suisse and Sanford Bernstein. The shares have traded recently at or near the 52-week high, with late Tuesday afternoon trades at $78.95 reflecting a more than 1.1% increase. During the past 52 weeks, the share price has ranged from a $79.89 high to a $69.33 low.

Also on Tuesday, the company announced a quarterly dividend of 20 cents per share payable Aug. 15 to shareholders of record as of Aug. 1.

The Dow Jones Transportation Index was up more than 1% in Tuesday afternoon trading, and at 8,445.10, was trading near the 52-week high of 8,468.89. The 52 week low is 6,212.54.

The Cass Freight Index for June showed shipments up 2.4% and freight spending up 4.2% – a difference that shows the rise in prices related to the combination of increased demand and tightening capacity.

“June shipment volumes increased 2.4 percent to the highest level since November 2007, just before the recession. Volumes were 6.0 percent higher than a year ago and are up 15.8 percent since the beginning of 2014. Construction and manufacturing activities – both drivers of demand for transportation services – have been rising for several months,” Rosalyn Wilson, a supply chain expert and senior business analyst with Vienna, Va.-based Delcan Corp., noted in the Cass report.

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, who authors the Cass report, said the outlook is good for the trucking and shipping sectors because “current growth sectors in the economy depend on transportation services.”

Wilson also said recent GDP reports do not necessarily bode ill for the transportation sector. The federal Bureau of Economic analysis reported June 25 that the first quarter GDP fell at an annual rate of 2.9%, following a GDP rise of 2.6% in the fourth quarter of 2013. The contraction was the most severe in five years.

“Despite some talk that the slowing and then contracting economy could signal another recession, the foundation and building blocks for a growing economy are stabilizing and growing,” Wilson noted. “Sales of both new and existing homes are increasing, industrial and government construction have been up for the last several months, and manufacturing has been largely growing for close to a year. Retail sales have yet to show signs of significant growth, but they are not shrinking either, and consumer confidence levels have surpassed pre‐recession levels.”