ORLANDO, Fla. – The American Trucking Associations (ATA) delivered a grim economic outlook at its annual management conference, lowering forecasts for the overall US economy and trucking.
“The small bump in freight that many witnessed in late spring and early summer never materialized into better growth,” the ATA announced during its economic review. “Economic data suggests that the second half of this year will be much like the first half of the year, thus postponing that turnaround, most likely until the second half of 2008.”
Early indicators suggest the fall freight season will be muted and the chance of a recession in the US has edged up to 40%, according to ATA chief economist, Bob Costello.
“Truck tonnage is in a recession environment, even though the overall economy is not,” Costello said during a panel discussion on the economy. “Looking ahead, you may see some positive months year-over-year, but things are going to be choppy.”
The number of loads transported in the US has remained unchanged compared to the same period last year, but tonnage has slipped 2.2%. Costello attributed this to the decline in the housing market – building supplies tend to be heavier than other commodities. For the same reason, flatdeck operators have taken the biggest hit (-4.3%) while dry van shipments have remained unchanged and reefers, bulk and tank shipments have each grown over 7%.
In terms of revenue, truckload carriers are reporting slight improvements over last year while LTL carriers are showing a decline. But in August, truckload was down -0.1% compared to last August and LTL was down -2.9%.
“The year-over-year comparisons over the last couple of months have actually been negative for both groups,” Costello said. “We’re not seeing an improvement here, we’re actually seeing a worsening.”
When broken down into length of haul, medium-haul shipments (501-1,000 miles) are up while both short- and long-haul shipments are in decline. Costello noted this is partially due to an evolving supply chain.
“The supply chain is changing,” he said. “More folks are using intermodal and also some shippers that had three distribution centers 10 years ago have 12 today. That’s going to bring down the average length of haul. We think the average length of haul will continue to go down.”
The ATA has witnessed a reduction in fleet size among large truckload and LTL carriers. Costello pointed out the national driver workforce has shrunk by 5,000 drivers so far this year. That has provided some relief for the driver shortage, but Costello said the issue is not going to disappear.
“It is a little easier finding drivers, however, it’s not necessarily easy and you shouldn’t get used to it because when things do turn around it’s going to be tough again,” warned Costello. “I think that’s the number one reason capacity will remain very constrained in our industry.”
While large TL and LTL carriers have collectively reduced their fleet size, small truckload carriers bucked the trend and continued increasing their fleet size until very recently, according to ATA data.
“Large truckload fleets were very quick to react to the slowdown and actually started reducing their employment in the fourth quarter of last year. The small truckload carriers kept going and probably went up more than they should have,” Costello said. He attributed it to the sudden availability of drivers, but cautioned “they have the mentality of ‘If I can find them, let’s get them,’ but that may not be the best strategy because freight volumes could get a little worse before they get better.”
This year’s fall freight season is shaping up to be a bust, but Costello said it’s partially due to evolving holiday buying habits. The historical average spike in October freight volumes is about 6%, but Costello said it’s now about 2%.
“On the positive side, that November fall-off is only about half as bad as it used to be,” he said. “In the long run, this helps motor carriers because they had that equipment for the peaks only to get hurt during the troughs.”
The industry is witnessing a new phenomenon, a spike in January shipments due to the increased purchase of gift cards during the holidays.
Overall, the ATA provided the following outlook: “Recent developments in the economy have caused us to lower our outlook for the rest of 2007 and 2008. Trucking volumes, which tend to be a good predictor of general economic activity, point to subdued growth ahead. Furthermore, the housing market correction will be longer than originally expected. This all translates to muted freight volumes for trucking during the final quarter of this year and at least through the first quarter of next year.”
But it wasn’t all doom and gloom. Costello, when prodded for a nugget of good news, said “The pieces are falling in place for this industry that when things do turn around, they’re going to be very quick and very positive.”