Concern over oil may trump positive freight growth

Concern over oil may trump positive freight growth

Freight volumes rose considerably in January, despite a long stretch of harsh winter weather, but that positive tonnage trend may be overshadowed by growing concern within the industry over the impact of rising oil prices

Photo courtesy of APL

Freight volumes rose considerably in January, despite a long stretch of harsh winter weather, but that positive tonnage trend may be overshadowed by growing concern within the industry over the impact of rising oil prices.

The American Trucking Assns. (ATA) said its for-hire truck tonnage index jumped 3.8% in January after rising a revised 2.5% percent in December last year. Compared with January 2010, tonnage climbed 8%; the largest year-over-year increase since April 2010. For all of 2010, tonnage was up 5.7% compared with 2009.

Still, ATA Chief Economist Bob Costello said rising oil prices, which topped $100 a barrel this week fueled by the ongoing civil unrest in Libyan, the world’s 12th largest oil exporting nation, is becoming more worrisome for both the trucking industry and the U.S. economy as a whole.

“At this point, the biggest threat is the recent run-up in oil prices, which could dampen consumer spending,” he said.

Noel Perry, senior consultant for FTR Associates and president of research firm Transport Fundamentals, told Fleet Owner that a short term spike in oil prices should not trouble trucking too much; it’s a longer-term upswing that could lead to serious issues.

“In the tightening capacity market I expect that truckers will be able to pass on any fuel hikes, with some normal lag,” he explained. “This issue [of higher oil prices] is of importance for its indirect effects. Should the hikes be sustained, it could kill the [economic] upturn.”

Steve Tam, vp-commercial vehicle sector with ACT Research Co., noted that an oil price increase is one of the” critical elements” economists did not want to see occur, as it would significantly dampen the ongoing global economic recovery.

“The impact of $100 oil for a sustained period of time is more broadly economic related, not so much directly trucking related,” he told Fleet Owner. “If consumers must pay more for fuel, it takes money away from other parts of the economy. That means the economy is not generating incremental freight.”

He added that although the Organization of Petroleum Exporting Countries [OPEC] has stated it will increase oil production to offset the capacity loss due to the unrest in Libya, the “fragile psyche” of the global economy is already being affected.

All of that being said, trucking freight volumes remain on the increase in the U.S., and that’s a good thing, noted Eric Starks, FTR’s president.

“The freight fundamentals are staying strong and that’s good,” he told Fleet Owner. “January’s [tonnage] numbers were good even with the bad weather and that’s a very positive sign that the economic recovery is still moving ahead.”

ATA’s Costello is also cheered by January’s robust freight gains as well, despite his concerns over the rapid rise in oil prices.

“Many fleets told us that freight was solid in January, although operations were a challenge due to the winter storms that hit large parts of the country,” he said. “These latest tonnage numbers indicate that the economy is growing at a good clip early in 2011 and we should expect a solid first half of the year.”

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