Linehaul traffic slows

Regional and local distribution less affected by decline in exportsWe should see a shift in growth rates for some segments of the trucking industry during the next few months. In general, we can expect to see linehaul traffic softening at a much faster rate than local and regional distribution, as weak export growth leads to less shipment activity.The relative weakness of foreign currencies means

Regional and local distribution less affected by decline in exports

We should see a shift in growth rates for some segments of the trucking industry during the next few months. In general, we can expect to see linehaul traffic softening at a much faster rate than local and regional distribution, as weak export growth leads to less shipment activity.

The relative weakness of foreign currencies means that export shipments will be lower than expected. And with currency problems now extending into South America, the problem is increasing. This decline in export activity will also affect several other segments of the economy, since exports are not confined to finished goods. Demand for intermediate products, such as those used in manufacturing, agriculture, and construction, are also affected, although not to the same extent as finished goods.

Intermediate goods will be used either for domestic consumption (once they are exported), which is unaffected by currency devaluation, or for further export,which could actually be positively affected by a devaluation in currency. Overall, foreign demand for U.S. intermediate goods is expected to remain relatively strong.

Unfortunately, intermediate goods dont require as many transportation resources as finished goods. In addition, the relative value of intermediate goods is lower than finished goods, which means that less expensive transportation services, such as rail or barge, are often used.

The decline in export activity will have the greatest impact on the linehaul segment of the industry, although this will be partially offset by the increase in import traffic. One drawback to import traffic, however, is that it comes from only a few ports of entry and has a two-leg distribution pattern. When exports are down, there will not be enough freight to fill the return trips to the ports of entry. And when imports replace domestic goods, traffic activity is affected because there are fewer distribution legs. In either case, traffic is dampened and lane balancing becomes more difficult.

Since most traffic in these markets is comprised of finished goods, however, traffic levels will be more dependent on consumer demand. Local and regional distribution requirements will be driven, in part, by local production activity. The outlook for consumer demand remains one of growth, although at more modest levels than earlier in the year.

The impact of a decline in exports is not likely to subside any time soon. Evidence from the 1980s shows that trade of manufactured goods with Latin America and South America remained subdued for several years until their economies started to recover. At that point, growth and pent-up demand stimulated a significant amount of export activity. The same is likely to happen again, but with more regions of the world involved.

As we can see from the Pacific Northwest in the U.S. and Canada, traffic patterns are not limited to manufactured goods. Shipments of lumber and agricultural products, for example, have been severely restricted recently. This has driven down the price of the same goods for the domestic consumer, which may provide a slight increase in domestic demand. Regardless of that potential, however, overall shipments from these areas will be depressed for some time.

In addition to the falloff in demand for the commodities themselves, demand for things related to their production could also affect shipment activity into that region. There are some signs that the agriculture sector is shifting into crops that will offset the current decline. However, these crops are likely to displace other domestic sources, so the net result will still be a decline in aggregate transportation services, with some relief in regional distribution requirements.

Carriers aligned with shippers that are primary sources for exports will find that their traffic will continue to slide well into next year. Because the Asian and South American financial markets will remain unsettled for several more quarters, current exporters may invest more in local production offshore. This could result in a permanent shift of transportation requirements for exports.

Look for traffic patterns to adjust throughout the next four quarters, with regional and local disruption less than that for linehaul carriers.

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