Freight:  Getting through the rough patch

Freight: Getting through the rough patch

Freight volumes are improving but at an uneven pace, with the year-over-year gap in freight tonnage continuing to narrow. But transportation providers report they are still searching for ways to cut costs and trim the bottom line to sustain their operations through the rough patch.

Freight volumes are improving but at an uneven pace, with the year-over-year gap in freight tonnage continuing to narrow. But transportation providers report they are still searching for ways to cut costs and trim the bottom line to sustain their operations through the rough patch.

“The industry should be prepared for ups and downs in the months ahead, but the general trend should be modest improvement,” said Bob Costello, chief economist for the American Trucking Assns. (ATA). “Between most economic indicators recovering and less of an overhang in inventories, I’m confident that the industry is still on the road to recovery.”

The ATA advance seasonally adjusted for-hire truck tonnage index decreased 0.3% in September, after increasing 2.1% in both July and August. Costello noted that fits with the premise that the freight recovery will be moderate and choppy. He also pointed out that the year-over-year gap in freight demand is at its narrowest point yet, with September 2009 tonnage off 7.3% from the same month last year-- the best year-over-year showing since November 2008.

“The trucking industry should not be alarmed by the very small decrease in September,” Costello explained. “We took two steps forward in July and August and this was a miniscule step backward.”

Eric Starks, president of research firm FTR Associates, concurred with Costello’s analysis and cautioned the industry “not to get too excited” over the monthly numbers through the end of 2009 and into 2010.

“Things are still shaping up for a recovery in the second quarter of next year for freight – though it could come a little earlier or a little later depending on inventory levels,” he told FleetOwner. “Right now, inventory levels are being pared down and that’s what we really like to see – that potentially means more demand for trucking to replenish those levels.”

The main thing to understand, added Starks, is that the monthly and year-over-year comparisons going forward will be relatively “deceptive” as they’ll be viewed alongside the freight market collapse in 2008.

“What’s going to happen is we’ll start seeing 2% to 3% monthly year-over-year gains in freight, which will be whole lot better than the 10% to 12% gaps we were seeing at the start of 2009,” he said. “But those numbers are going to look better than they really are because we’re comparing them to a freight market that cratered at the end of 2008.”

That’s why many transport providers feel the freight market is still going to be difficult to navigate at least through the near term.

“Truckload industry conditions remain challenging. However, we believe that conditions have likely bottomed and continue to remain in the current recessionary trough of freight demand,” said Clifton Beckham, president & CEO of Van Buren, AR-based TL carrier USA Truck Inc. in the company’s third quarter earnings report. “We experienced slight seasonal improvement throughout the third quarter, which resulted in our fundamental operating metrics and results improving sequentially in each month of the quarter.”

Still, Beckham stressed that those improving trends are not translating into an easing of pressure of freight rates – not by a long shot.

USA Truck lost $1.6 million on 20.6% lower revenues of $82.3 million in the third quarter this year, a compared to net income of $2.4 million on $103.7 million in the same period in 2008. For the first nine months of 2009, USA lost $4.7 million on 19.1% lower revenues of $246.4 million, down from profits of $2.5 million on revenues of $304.7 million for the same period in 2008.

“Businesses continue to operate at reduced inventory levels, [making] the recession seem much worse than the actual macroeconomic contraction would suggest,” Beckham pointed out. “The lack of freight demand has created excess tractor capacity industry wide, which, when coupled with shippers’ needs to cut transportation costs, has put severe downward pressure on freight pricing.”

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