US Freight Recession Bottoming Out: FTR Associates
July 1, 2009
NASHVILLE, Ind. - The current recession is U-shaped -not Vshaped -and we're now bouncing along the bottom of that U, according to the latest Current Freight Outlook Webinar hosted by transportation in...
NASHVILLE, Ind. –The current recession is U-shaped -not Vshaped -and we’re now bouncing along the bottom of that U, according to the latest Current Freight Outlook Webinar hosted by transportation industry forecaster FTR Associates.
The good news is we’ve found the bottom. The bad news is that there won’t be a rapid rise from the ashes, according to Noel Perry, founder and principal of Transportation Fundamentals.
Key economic indicators have stabilized, Perry pointed out, adding that FTR Associates expects to see positive GDP growth beginning next quarter and into 2010. However, he noted modest GDP growth doesn’t necessarily translate to an improvement in freight conditions.
“We don’t get back to a 1% growth in freight until the economy approaches 3% growth,” he noted.
Perry predicted freight volumes would stabilize over the summer and trucking companies will be able to regroup and focus on returning to profitability. Yet he warned there is still an overcapacity situation plaguing the industry and carrier bankruptcies will continue to occur. Equipment utilization is below 1982 levels, noted Perry, adding nearly half of US truck fleets currently have operating ratios of greater than 100.
“On average, this is a terrible time for profitability,” Perry said.
Just how bad has the recession been? Perry said it’s comparable to the 1982 recession but a far cry from the Great Depression.
The current US recession officially lasted about four quarters and saw GDP drop about 4% in that time. By contrast, GDP dropped 25% during the Depression, which stretched across 14 quarters.
“This ain’t nothing like the Depression,” said Perry. “Don’t complain to your grandparents about how bad your business is now, what they survived was much worse.”
Despite all that, the transportation industry bore the brunt of the current recession. Trucking began feeling the impact of the economic meltdown long before it was officially termed a recession. Perry said the first phase of the economic cycle was the “slowdown” which began near the end of 2005 with economic growth slowing to less than 3%.
“When the economy is growing at less than 3%, those of us in the transportation business don’t grow at all,” Perry explained. “So our recession really starts when the slowdown in the economy starts.”
Exacerbating the problem was an equipment “overbuy” that took place in 2006, inflating capacity.
When the recession hit in earnest this past summer, the trucking industry was already coping with “cumulative stresses” of the three year long freight recession.
So for all intents and purposes, the recession lasted 16 or 17 quarters for the transportation industry, Perry explained, “not just the four quarters that the people from Washington are talking about.”
The current recession facing the trucking industry is now the longest on record -about one quarter longer than the 1982 recession, said Perry. It dwarfed the recessions of 1991 and 2001, and Perry said we must re-evaluate how we manage through recessions.
“If you think about it, the management techniques we developed over the last 20 years to survive a recession are obsolete, they’re just not strong enough,” he noted.
FTR Associates was reluctant to speculate on what the recovery would look like, preferring to use its most recent Webinar to establish the fact the US trucking recession has in fact bottomed out. The economy could “bounce around” on the bottom for as many as two to six quarters, Perry warned.