Trucking industry might recover more quickly from COVID-19 pandemic, ATA economist says

As economic activity has risen so has freight demand, yet for-hire truck shipments fell slightly in May, from April.

The American Trucking Associations’ (ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index fell 1% in May, from April, and was down 9.6% from May 2019.

Meanwhile, the shipments component of the Cass Freight Index increased 1.6% in May, from April, but was down 23.6% from May 2019. The expenditures component of the Cass Freight Index fell 5.7% in May, from April, and was down 21.2% from May 2019.

“While tonnage fell in May, even though other economic indicators like retail sales and housing starts rose, I’m not overly concerned,” said ATA Chief Economist Bob Costello. “First, while down over 10% sequentially in April, truck tonnage did not fall as much as other economic indicators that month. This means that any rebound is tougher since tonnage didn’t fall substantially to begin with. Second, there are indications that freight continues to improve as more and more states and localities lift lockdown restrictions.”

The year-over-year decline in May tonnage was the largest since the Great Recession in 2009, but the index is not falling as much as during that economic downtown, according to the ATA. In April 2009, the index declined 14% from the same month in 2008. Through May, the index has declined 2.6%, from the same period in 2019.

“While the overall economy will likely take more than a year to recover, assuming the pandemic doesn’t spike again, the trucking industry could recover back to pre-COVID levels before many other industries because it hasn’t fallen as much,” Costello said. “As retail sales improve and housing starts to recover that will help trucking. The risk for trucking is that the virus surges again and places start to shut back down again.”

David Ross, author of the Cass Freight Index and managing director for Stifel, expects 2019 freight levels won’t return until 2021 at the earliest because of the rise in unemployment and other results of governmental actions. April was expected to be a low point across the transportation industry, but Ross was surprised not to see a greater increase in demand in May. The reopening of the economy looks to have taken longer than expected, and some freight data reported by public companies showed a greater rise than the Cass did. June is usually the best month in the second quarter, and the index is projected to improve for the month but likely be down from June 2019.

Freight demand looks to have hit a low point in late April or early May, according to a report by senior research analyst Benjamin Hartford and research analyst Andrew Reed, both of Baird. Through mid-June, demand has improved across all U.S. transportation modes since hitting the bottom, while spot trucking activity has increased since Memorial Day.

Spot rates declined 11% in May, from the same month in 2019, as the number of loads per truck increased 8%, according to DAT Solutions. However, the rates rose 4.3% in the week ending June 21, from the week ending June 14, and have returned to levels before the COVID-19 pandemic.

“The spot market regained momentum last week,” according to DAT. “That pushed national averages for van and reefer rates above where they were before the coronavirus crisis in February, excluding fuel surcharges. The national flatbed rate is just 1 cent short of that mark.”

KeyBanc Capital Markets recently increased its rating for Lowell-based carrier J.B. Hunt Transport Services Inc. to overweight, from sector weight, according to Seeking Alpha. The company upgraded the carrier’s stock amid signs of rising imports, including a rise in container import volume at the Port of Los Angeles in June, from May. Also, rising retail sales are expected to be positive for J.B. Hunt, and margins are projected to benefit from technology investments. KeyBanc gives J.B. Hunt’s stock a 12-month target price of $135.

The carrier’s intermodal segment comprises the largest portion of its income and revenue, and intermodal sector volumes continued to be impacted because of the COVID-19 pandemic in May, according to a recent Logistics Management article. Intermodal volume in North America fell 15.6% to 1.32 million units in May, from the same month in 2019. Through May, the volumes have declined 10.2% to 6.77 million, from the same period in 2019. Intermodal volumes are projected to fall 15% in 2020, from 2019, according to FTR.