Hopes that there is finally light at the end of the tunnel based on recent reports of US truck tonnage showing a spike in January (it was our top Headline News story on Friday) are, unfortunately, wishful thinking.
US truck tonnage did spike 3% in January but that’s only because December’s numbers were so dismal. Put the spike in perspective and you see why there’s no reason to be optimistic: compared to the previous January, the month was down 10.8%; and the month’s tonnage was the second lowest since October 2002.
As the American Trucking Association’s chief economist Bob Costello pointed out, just because the tonnage figures show the occasional spike is no indication the US economy is on the mend. The reality is that tonnage is still showing significant drops on a year-to-year basis.
We are far, far from a recovery, particularly one led by the resurgence of the US economy.
That’s certainly what FTR Associates, well known for their transportation sector outlooks, believes. It sees economic activity declining sharply in the US with the first quarter economic activity forecast to decline another 4.8% after falling 3.8% in the final quarter of 2008. Loadings are forecast to drop another 10% over the next several months and be off by more than 7% in 2009. That represents more than a doubling of the dropoff forecasted just a couple of months ago.
FTR expects the US economy to continue contracting right through to the third quarter of 2009. To make matters worse, there is also concern about a protracted “down cycle” in which the US economy remains stuck in neutral into 2010.
Canadian exporters are also not looking at the US market through rose colored glasses. Sentiment among Canadian exporters has hit a record low. They now see the United States as among the riskiest markets in which to sell goods, according to a semi-annual confidence survey conducted by Export Development Canada.
At the same time, concerns about the domestic economy hit a new high, with 57% of respondents expecting domestic conditions to worsen, a 15% leap in just six months.
Despite all the bankruptcies of the past year, FTR points out that the amount of excess capacity in the market remains troubling. Its latest forecast has capacity utilization staying below 70% through the third quarter of 2009.
There is already a great deal of pressure on rates but motor carriers with 30% of their equipment lying idle will likely be pressured into more rate cuts and perhaps even more questionable business decisions.