It might appear to some of us these days that all the economic science involved in predicting the behavior of medium-term markets is as conclusive as a childhood game of plucking rose petals: Recovery. Recovery not.

But there’s a third option, it seems: Recovery — sort of.

Translated in economist-speak, the forecast "consensus" apparently boils down to "cautiously optimistic," meaning most analysts, including freight experts, think we’ve touched rock bottom.

Whether or not we’ll continue to scrape along the gravelly base for quite a while longer, begin riding up the painfully bumpy U-shaped curve, or (brace yourselves) propel sharply aloft — as a small handful of number-crunchers have boldly speculated recently — are the kinds of questions that keep economists’ pay scale in our stratosphere.

It used to be, once upon 2001, that trucking could be counted on as a decently reliable bellwether for economic performance. But in this downturn, carriers and owner-ops wait to feel the wind blow like everyone else.

"Generally, trucking and rail freight rebounds ahead of the economy as people get more confident and want to ramp up inventory ahead of a possible [boost] in sales," explains National Bank trucking analyst Aaron Duxbury. "But in this downturn, the inventory-to-sales ratio is at pretty huge levels. While absolute inventories have fallen, sales have fallen much faster, and in Canada it’s way above anything we’ve seen since the early ’90s."

Inventories have drawn back about five to 10 percent from their summer peak as the economy shows a pulse, but trucking is still playing catch-up as those products take time to move off the racks.

As for the state of freight, Duxbury confidently pitches his tent in the slow-but-steady camp. He sympathizes with Canadian truckers who have yet to see a correlation between recent capital market-led economic improvements and freight trends, but, citing industrial production numbers of late, he predicts a modest bump in freight volumes later this year and in early 2010. 

Working with other carriers in niche lanes will determine
small fleet survival in trucking’s next chapter

Naturally, truckers on the ground tend to be more skeptical, although fleets are certainly less pessimistic than they were last quarter.

According to the last Ontario Trucking Association (OTA) Business Pulse e-Survey, the gap between responding carriers that are pessimistic versus those that see light at the end of the recessionary tunnel has virtually vanished at 32 percent each, with an equal percentage being "unsure." 

(In the previous April survey, 16 points separated the two camps, which was already half of the whopping 35-percent gap back in the first quarter). 

While carriers see local sectors becoming more sanguine in the next few months, many aren’t convinced the U.S. economy is out of danger, and that’s naturally clouding the outlook for the export-based economy.

There are so many variables at work, says OTA President David Bradley — the U.S. economy, the recent appreciation of the dollar, the availability of credit — that continue to overhang our view of things. "I would characterize our outlook as being slightly more hopeful than optimistic at this point."

American Trucking Associations (ATA) chief economist Bob Costello would hardly disagree. In a web-based press conference in late summer Costello said that American fleets are "just starting to see signs of economic life," but in the big picture, consumer spending will be tepid even throughout the supposed peak, pre-Holiday shipping season. And when spending starts to come back well into next year, it will remain far lower than it was in 2008.

"At the end of the day," Costello said, "our government overspent and we as households overspent, and we can’t do that anymore."

Aside from President Obama’s recent musings about bailouts for his previous multi-billion dollar bailouts, at least one economist doesn’t think America’s massive debt load will keep a lid on what he believes is the cusp of a steep "V-shaped" recovery.

Writing in The Financial Times, Tim Bond of Barclays Capital contends that throughout history, depressed economies have always recovered much faster than the expectations at the time. Among his other arguments: Asia, dependant on exports to America, is already seeing a V-shaped bounce; and that new numbers show that households have made the appropriate saving adjustments to declines in wealth.

"Never has a bull market climbed a steeper wall of worry. In spite of a proliferation of positive economic indicators, the consensus remains gloomy," he writes. "Bullish economists are [like] hens’ teeth."

Sure, it’s outside the margins of conventional wisdom, but Bond’s take has to be refreshing at least to anyone who subscribes to the notion that this is in part a media-fueled recession.

Duxbury appreciates it as food-for-thought, but neither he nor many other analysts are buying. "With 70 percent of the U.S. economy driven by the consumer, I just don’t see those people going out and levering up their houses and that kind of stuff to go buy things like they did between 2005 and 2007," he says. 

North American truck freight monitor

And even if demand does surge ahead of expectations, it’s the supply side that is the key to improving trucking and right now the industry still has a major capacity hurdle to leap over. Truck bankruptcies have failed to accelerate in these tough times in part because of uncharacteristically low diesel prices, shippers’ contagious appetite for bargain-basement rates, and extremely lenient lenders and leasers who would rather keep struggling truckers afloat than send in the repo man.

The good news is that much of that could soon come to an end.

Diesel will jump when distillate inventories recede, the Canadian dollar is rising and insurance and credit markets are getting tighter.

On top of that, truckers who’ve been working for a buck-and-a bit per mile until now are going to have to get real clever about convincing their opportunistic customers they need a substantial rate hike.

If not, maintaining steady cash flow is going to be a problem, especially for small and medium operators who are invested too heavily against their accounts receivables.

Just don’t put Bill Cameron in that group. The owner of three-truck southern Ontario flatbed carrier Parks Transportation says "he saw the writing on the wall" a couple of years ago and made sure he was nearly debt-free on equipment. Times have been tough since then, sure, but he’s still rolling and holding on rates.

"Lately, I’ve been accused of being unreasonable, even insane, for turning down outbound van freight at $1.20 per mile or flatbed outbound at $1.50 or $1.70," he says. "We’ve had a few customers we decided we couldn’t work for. But although there’s other customers that can get large carriers cheaper than us, we still get the work."

How? Turn off your cliché detector for a sec, but to Cameron’s customers "service still happens to mean something."

"I never thought I’d be sitting here saying that being there when you say you will would have made us special," he says, "but apparently it does."

To achieve that level of commitment, Parks Transportation has joined forces with a trio of similarly sized operators who share Cameron’s stubbornness on rates and service. This, he believes, is the title of small-fleet survival in trucking’s next chapter.

"We’re squeezing out whatever [costs] we can as it is. The only other way to find savings and kill [dead] miles is to work together," he says. "I don’t need to put two other trucks on the road that I may only need this month and have trucks sitting around when I don’t need them. This way, everyone wins."

If there’s ever going to be capacity equilibrium again, some can’t win, of course. And Cameron is convinced that many of those that do might have to settle for smaller rewards.

"I doubt I’ll live long enough to see the economy return to the peak it was three years ago," he says very non-facetiously. "People and businesses are realizing how far over their resources they’ve been spending.

They’re learning to trim the fat and realize they can still get the job done. When times are good, you never have to look for that."

Nor in tough times, as Cameron well knows, can you just sit back and pluck rose petals and read tea leaves.