Trends up for U.S. freight sector, but West Coast port issues may limit gains

After several years of ups and downs in the national freight transportation sector, 2014 trends appear to be well in favor of the trucking industry and other shippers. Such trends also point to stable gains in the national economy. However, a possible kink in the overall good news could be shipping disruptions at West Coast ports.

The American Trucking Associations’ Truck Tonnage Index was up 0.5% in October after a a revised decline of 0.8% in September. Year-to-date, tonnage is up 3.2% compared to the same period in 2013.

The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, was up 4.3% compared to September.

“Tonnage made a nice comeback after declining in September. The gain fits with the increases in retail sales and factory output during October, as well as with good anecdotal reports about the fall freight season,” ATA Chief Economist Bob Costello noted in his monthly report.

According to the ATA, trucking serves as a barometer of the U.S. economy, representing 69.1% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.7 billion tons of freight in 2013. Motor carriers collected $681.7 billion, or 81.2% of total revenue earned by all transport modes.

With just one month complete in the fourth quarter, Costello believes tonnage levels will remain strong through the end of the year.

“The solid month-to-month gain, coupled with the acceleration in the year-over-year growth rate, is a good sign for the fourth quarter,” Costello said. “In addition, I’m expecting a solid fall freight season as holiday sales are forecasted to see the largest increase since 2011.”

PORT PROBLEMS
Putting possible downward pressure on a seamless holiday season and shipping trends are shipment disruptions caused by port disruptions in California, said 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.

The Cass Freight Index was positive in October with shipments up 3.3% year-over-year and freight expenditures up 6.4% year-over-year. Cass uses data from $22 billion in annual freight transactions to create the Index. The data comes from a Cass client base of 350 large shippers.

Wilson said the West Coast port congestion “is causing trouble for retailers attempting to stock their shelves for the season kickoff on Black Friday.”

A contract dispute between port operators and the International Longshore and Warehouse Union is resulting in “slowdowns” at key ports in California. A Nov. 18 report by the Journal of Commerce had a statement form the Pacific Maritime Association about the problem.

“The slowdowns are continuing up and down the coast. ILWU continues to withhold skilled labor at LA-Long Beach, moves are still off in the Pacific Northwest and Oakland is about 30 percent below norms on crane moves,” PMA said in the JOC report.

The previous contract between operators and the union expired July 1.

“Christmas trees are not being exported and will miss the holiday season in Asia completely. Potatoes are not being exported and the cargo will likely be a total loss for the farmers whose entire year is dependent upon current shipments. Foreign customers are already canceling orders and turning to other countries to satisfy their needs,” the Agriculture Transportation Coalition noted in the JOC report.

Wilson said the problem has reached crisis proportions with consequences unknown for the national economy.

“The best description for much of our freight transportation system is turmoil. The congestion and slowdown at the ports deteriorated over the month of October and has reached crisis proportions, particularly at the Port of LA/Long Beach, which handles more than 40 percent of all U.S. ocean imports and a disproportionately large percent of consumer goods – the very goods that are supposed to be stocking shelves for the upcoming holiday buying season. Toy retailers, in particular, have been hard hit and everyone is feeling the effect of a three-week delay now at the Port of LA/Long Beach,” Wilson explained.

She also said the ports of New York/New Jersey and in Houston also have congestion problems.

OPTIMISTIC OUTLOOKS
However, Wilson is optimistic about overall economic trends and the fourth quarter for the freight industry.

“The unemployment rate, which was 7.2 percent at this time last year, is now at 5.9 percent. Strong orders for factory goods in October, combined with increased exports, should ensure that 2014 will not end with the severe drops we have seen in the past couple of years,” she said.

In terms of financial performance for the truckload and less-than-truckload sectors, a good fourth quarter will build off what was a solid third quarter, according to Brad Delco, a transportation industry analyst for Little Rock-based Stephens Inc.

The recently reported Stephens TL (truckload) Rate Index, a measure of trucking revenue/loaded miles, increased 4.8% from the third quarter of 2013 to the third quarter of 2014. It was the 18th consecutive quarterly year-over-year increase for the publicly held companies Stephens’ tracks in the Index.

“The 3Q14 increase was the highest year-over-year increase in the index since 4Q11 driven by a number of factors, in our opinion, including driver shortages, improving demand and regulatory driven supply constraints. Going forward, we expect rate increases for the year to be up around +5.0% on average based on continued strong commentary that we have heard coming out of 3Q,” Delco noted in the report.

The Stephens LTL (less-than-truckload) Yield Index, an estimate of revenue per hundredweight (excluding fuel surcharges), was up 3% in the third quarter of 2014 compared to the same quarter of 2013. Contract rate hikes of up to 5% helped boost revenue in a sector in which capacity – the amount of equipment available to haul goods – is tight, Delco said.