Slow yet steady progress predicted for freight, global economy Fleet Owner

Slow yet steady progress predicted for freight, global economy

Domestic freight volumes seem to be improving and are projected to gain more steam by summer, according to several analysts, in part due a slow yet steady rebound in the global economy.

Benjamin Hartford, a transportation analyst with Wall Street investment firm Robert W. Baird & Co., said in a recent research report that domestic freight trends improved into May following a sluggish April, though trends in recent weeks are described as "choppy."

“Some of the weakness has been attributed to the cold spring, which tempered retail demand and traditional beverage and produce shipping patterns,” Hartford noted. “That said there is hope among public and private carriers that the below-seasonal spring could support improved trends in May and June – reflected in a recent pickup in spot [freight market] activity.”

He added Baird’s Domestic Freight Index, a proxy for monthly domestic freight activity, grew 2.3% in April following 2.2% year-over-year growth in the first quarter, with carriers noting that the supply/demand dynamic remains near equilibrium and could tighten quickly if demand improves.

Fellow Wall Street firm Stifel Nicolaus echoed that sentiment, noting that many economic forecasters project accelerating industrial growth in the second half of 2013, while impeding changes to hours-of-service (HOS) rules could produce a reduction in industry capacity, thereby tightening up supply and demand and, in turn, pricing.

Baird’s data indicates core truckload pricing growth continues to trend upward by 1.5% to 2% year-over-year, consistent with the firm’s expectations but below some initial expectation for 2013 by TL carriers. LTL pricing continues to trend above TL, noted Hartford, rising 2% to 3% year-over-year.

“Continued cost pressures within the TL market promote the need for pricing growth among carriers, which protects the downside risk to freight rates this cycle in our view,” he stressed. “We believe our expectation for 1.5% to 2% year-over-year core contractual TL pricing growth this year will be enough to offset cost inflation and hold margins roughly flat.”

He added that the new HOS regulations, scheduled to be implemented in July, could negatively impact fleet productivity by 5%, but that several TL carriers surveyed by Baird indicated that absent mandated electronic on-board recorders (EOBRs) use the ability to better police HOS changes industry-wide is difficult, though will still impact compliant carriers.

Still, current global economic growth projections hold out the promise of rising freight volumes, albeit at potentially lower-than-desired levels.

In its twice-yearly Economic Outlook, the Organization for Economic Cooperation and Development(OECD) forecast the world economy would grow 3.1% this year before accelerating to 4% in 2014.

While those estimates marked a slightly more pessimistic view compared to the group’s last outlook report in November – when it forecast global growth of 3.4% for 2013 and 4.2% for 2014 – the U.S. is now predicted to be a “driving force” in growth this year with its economy projected to expand 1.9% for 2103 and then accelerating to 2.8% in 2014; which would be the nation’s best rate of growth since 2005, said Pier Carlo Padoan , the OECD’s deputy secretary-general and chief economist this week.

“While still disappointing, the global economy is moving forward, and it is doing so at multiple speeds. These multiple speeds reflect different paths towards self-sustained growth, with each path carrying its own mix of risks,” he explained in a written statement this week.

“In the U.S., large imbalances had built up prior to the crisis and eventually erupted, but the economy has undergone significant adjustment, which is beginning to bear fruit,” Padoan noted. “The combination of a repaired financial system and a revival in confidence is driving growth. Private sector demand is stabilizing as household deleveraging is far advanced, house prices are rebounding and wealth accumulation is supporting consumption. Employment is growing, adding to confidence.”

TAGS: News
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish