Freight Sector Solid In First Quarter, But Slowdown Seen In Export Orders

The U.S. freight sector ended the first quarter on a high note, but authors of closely watched reports say the gains could be shaved in the remainder of 2015 by a decline in the global economy and a slowdown in U.S. manufacturing activity.

The Cass Freight Index showed a 5.1% decline in March shipments compared to March 2014, with March shipments up 0.3% compared to February.

Rosalyn Wilson, a supply chain expert and senior business analyst with Pasadena, Calif.-based Parsons, who provides economic analysis for the Cass Freight Index, said the quarter struggled through West Coast port labor issues and bad weather but trends began to improve in March.

“First quarter freight volumes were affected by labor problems, slowdowns and work stoppages at West Coast ports; extreme winter weather throughout much of the country; and a slowdown in the global economy,” Wilson noted in the report. “Other ports around the U.S. have been reporting higher container shipments as carriers try other options. After a rough few months, freight volumes overall were building strongly toward the end of the quarter. With that growth, we will see rate increases that may outpace the growth in volume. … April is usually the start of the spring shipping season, and the upturn in March for both rail and truck signals improved conditions ahead.”

Wilson also said new export orders continue to decline because of global economic conditions. The decline has been consistent since December 2014.

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.

‘POSITIVE SIGN’
The American Trucking Associations’ Truck Tonnage Index was up 1.1% in March and followed a revised decline of 2.8% in February. During the first quarter, tonnage was unchanged from the previous quarter while increasing 5% from the same period in 2014.

The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment was 17.2% above February.

“While tonnage did not fully recoup the loss from February, it increased nicely in March,” ATA Chief Economist Bob Costello noted in his report. “I’d say that tonnage was one of the better indicators for the month, which is a positive sign for the broader economy.”

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.

Costello said truck tonnage is up in five of the last six months, but is down 1.7% from the January 2015 high.

“The next couple of months will be telling for truck freight volumes as we enter the spring freight season,” he said.

‘SLOWER INDUSTRIAL DEMAND’
Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., said companies in the truckload sector should do well for the remainder of 2015. He said reduced manufacturing activity could slow tonnage gains for the less-than-truckload (LTL) carriers – such as Fort Smith-based ABF Freight System.

“Looking ahead to 1Q’15 earnings reports for the Truckload group, as a whole, we expect positive earnings announcements as a result of a solid truckload demand environment, favorable weather conditions relative to last year, and falling fuel prices,” Delco said in an investor note. “Longer term, we continue to believe that underlying fundamentals remain strong driven by driver shortages and regulatory capacity constraints that will lead to positive pricing trends over the next several years.”

For the LTL sector, Delco predicts “muted growth for the group compared to previous years due to relatively slower industrial demand levels and tougher comparables.”