SPECIAL REPORT: Freight recovery slow and not-so-steady

LAS VEGAS — Walk through the airport here or on any casino floor and you’re likely to hear the catch phrase "what happens in Vegas stays in Vegas" approximately every 33 seconds (estimated guess based on how many times this writer rolls his eyes in a five-minute span), but discussions on where U.S. freight trends are headed is far from a secret.

In fact, the unexceptional human traffic along the infamous strip and inside the hotels is pretty indicative of where the American economy is today.

If you’ve had your ear out for economic news, you’ll know that the consensus among most economists is generally summed up as "cautiously optimistic," but at the American Trucking Associations management conference in Las Vegas yesterday, a panel of transport-minded economist seemed to put a lid on any runaway enthusiasm.

The much-anticipated discussion, titled "All Eyes on the Economy" (moderated by Stuart Varney of Fox News) was somewhat disheartening for any carrier eager to hear about a freight market read to spring sharply aloft.

The worst may be over, but it "won’t be slow and steady ahead," quipped ATA chief economist Bob Costello, "but slow and very choppy."

Costello said the rapid freefall in freight goods demand over the last year "isn’t something we’ve ever seen before."

Sara Johnson, managing director of global macroeconomics at IHS Global Insight, put a wet blanket on some recent forecasts that peg the U.S. economy growing by 3 percent in the first six months of 2010 and another 4 percent in the latter half. 

She says there will be some "sluggish growth" in the 1.5-percent range to start the year, possibly advancing to about 3 percent by the end of 2010.

It’s not exactly a "double-dip recession," but businesses should brace for some retraction after what’s expected to be a modest boost to close 2009.

Johnson’s conservative projections are based mainly on still-stagnant consumer spending habits, sky-high unemployment, and a credit crunch that isn’t showing signs of relaxing. "Banks still haven’t fixed their problems," she said. "They’re more focused on rebuilding their (portfolios) and not necessarily on lending."

The best economists at the ATA conference could offer
carriers is that the economy would move

Recapping the last 12 months in American trucking, Costello explained that freight volumes fell 20 percent in 2009 while both average revenue per ton and average revenue per mile were down significantly, combining for a total revenue slump of 30 percent.
There’s little question, he adds, that trucking has taken it on the chin harder than almost any other industry.

Unlike in Canada, which has enjoyed a reasonably steady housing market during the downturn, the sheer magnitude and velocity of the housing market collapse in the U.S. hit the flatbed sector even harder than general truckload, noted Costello.

On the other hand, while some segments of reefer were hurt nearly as badly, others came out relatively unscathed. "Reefer is a unique animal," says Costello. "At the end of the day, people still have to eat."

Even as the freight market sputters toward recovery, it’s a good bet that other conditions like new packaging trends mean that volumes might not get back to what they were a few years ago for a very long time, says Charles W. Clowdis, also with HIS, in the Global Commerce and Transport division.

Driven by reducing both the costs of materials and transportation, "packing is now the supply chain executive’s newest biggest challenge," said Clowdis, citing, as an example, one telecom firm that dropped from 300 items on a shipping pallet down to 120 just by redesigning the packaging.

"When the economy returns to its full robustness, packaging will be another big issue the trucking industry will have to deal with," said Clowdis, who guesses that, market economics aside, cube volumes are down as much as 25 percent and down 8 percent in weight in various sectors.

THE NEW NORMAL:

These are just a few new realities truckers are waking up to. Johnson agrees that the spending habits of five years ago won’t return post-recession — at least not in the foreseeable future. A record drop in income net worth means that, for example, the days "of empty nesters who didn’t downsize and instead built extensions for the grandkids," will be missed by freight movers.

So, is there any good news in the short term? Half-jokingly, the panel struggled to find an answer.

Though, Costello said that the largest ever drop in freight demand is being followed by the steepest culling of excess capacity in recent memory as well. "To survive, fleets have been shrinking. Period." And that’s a good thing for any trucker who comes out the other side.

At the same time, emerging markets overseas has provided a "nice little release valve" for some of the used heavy truck glut.

"Has supply come down as much as demand has? No. Eventually, though, we’ll see the balance in capacity (return)."

More than anything, though, finding bottom has been a monumental point in this journey back to recovery. "We’ve hit bottom and that’s actually very, very significant," he said. "We’ve stopped the freefall and that really is important."

That’s enough for many truckers here. 


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