July Freight Tonnage Points To Uncertainty

Two closely watched indices measuring the health of the U.S. freight sector during the first half of the year have pointed to slow and uncertain economic growth in the nation’s economy. The July reports from the American Trucking Associations’ and the Cass Freight Index were more of the same.

The American Trucking Associations’ Truck Tonnage Index fell 0.4% in July after a scant 0.1% rise in June. Year-to-date, the index is up 4.7% compared to the same period in 2012.

The not-seasonally adjusted index, which represents the real change in tonnage hauled by the fleets, equaled 129.6 in June, which was 3% above the previous month.

“After gaining a total of 2.2% in May and June, it isn’t surprising that tonnage slipped a little in July,” ATA Chief Economist Bob Costello said in a statement. “The decrease corresponds with the small decline in manufacturing output during July reported by the Federal Reserve last week.”

Trucking serves as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods, according to the ATA. Trucks hauled 9.2 billion tons of freight in 2011. Motor carriers collected $603.9 billion, or 80.9% of total revenue earned by all transport modes.

Based on an expectation of continued growth in the energy industry and auto sector, Costello believes tonnage numbers will be positive in the second half of 2013.

“Despite the small reprieve in July, we expect solid tonnage numbers during the second half of the year as sectors that generate heavy freight, like oil and gas and autos, continue with robust growth,” Costello said. “Home construction generates a significant amount of tonnage, but as mortgage rates and home prices rise, growth in housing starts will decelerate slightly in the second half of the year, but still be a positive for truck freight volumes. Tonnage gains in the second half of the year are likely to overstate the strength in the economy as these heavy freight sectors continue to outperform the economy overall.”

RETAIL IMPACT?
One of those economic areas to see less freight shipped could be retail. In recent weeks, most major U.S. retailers have lowered their sales guidance for the second half of the year based on a reduction in consumer spending. Execs with Wal-Mart Stores recently cut the company’s growth projections for this fiscal year by 50% based on what they see as a “challenging” retail environment.

Costello told The City Wire that the retail sector pull back will have an impact on freight, but not enough to pull the amount of tonnage into negative territory compared to 2012. A shipment of retail goods, Costello explained, typically weighs less than a shipment of components for the housing, energy or auto sectors.

Costello’s view of tonnage gains for the remainder of 2013 is supported by an Aug. 15 report from Little Rock-based Stephens Inc. about the health of the less-than-truckload (LTL) sector of the trucking industry. The report, written by Stephens’ transportation industry analyst Brad Delco, and research associate Ben Hearnsberger, suggest that tonnage levels in the LTL began to improve the latter part of the second quarter and into the third fiscal quarter.

“(T)he tonnage trends throughout the second quarter were encouraging as many carriers that reported negative tonnage this quarter were seeing flat to positive tonnage in their monthly June/July figures,” noted the Stephens report.

CASS DECLINE
The Cass Freight Index fell 2.3% in July, but was a drop “in line with seasonal trends,” according to 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.

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.

Despite being down in June and July, shipment volume between January and July is up 3.4% above the same period in 2012.

Wilson’s report included the following info about shipping segments:

• Railroads led the way in declines with drops in carloadings and intermodal shipments in the last four weeks. Carloadings were down 3.6% and intermodal loadings fell 2.5%.
• The decrease in intermodal rail is consistent with the decline in imports and weak exports, which limited the number of trailers to be moved.
• The trucking sector showed some signs of capacity constriction, but it is too early to determine if or to what extent this is being caused by the new Hours of Service Rules.

Wilson said the U.S. economy “is still showing signs of slow growth,” with the GDP second quarter growth estimated at 1.7%, up from a first quarter revised growth rate of 1.1%. Another positive sign, according to Wilson, is improvement in U.S. manufacturing orders in June.

“Future prospects from a freight point of view look largely the same as they did last month. Volume is strong enough to make use of the equipment we have deployed, but not growing at a rate sufficient to cause stress in the system,” Wilson said.