Freight laughs at oil prices – for now

Freight laughs at oil prices – for now

A strong recovery in truck freight tonnage this March following rough winter weather and a continued run-up in oil prices is allaying fears for the moment that the U.S. economic recovery might lose its footing

A strong recovery in truck freight tonnage this March following rough winter weather and a continued run-up in oil prices is allaying fears for the moment that the U.S. economic recovery might lose its footing.

The American Trucking Associations’ (ATA) for-hire Truck Tonnage Index increased 1.7% in March after falling 2.7% in February. Compared with March 2010, tonnage is up 6.3%, the trade group noted. For the first quarter of 2011, tonnage jumped 3.8% from the fourth quarter of last year and is up 6.1% when compared to the first quarter of 2010.

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“Despite my concern that higher energy costs are going to begin cutting into consumer spending, tonnage levels were pretty good in March and the first quarter of the year,” Bob Costello, ATA’s chief economist, noted in a statement.

However, while Costello is confident that the trucking industry will continue to grow and recover from the weak freight environment seen in recent years, the rapid spike in fuel prices will slow that growth. “But as long as U.S. manufacturing activity remains strong, truck tonnage will benefit,” he added.

Eric Starks, president of FTR Associates, told Fleet Owner that the uptick in freight volumes this March remains in line with his firm’s overall projections for the trucking industry this year. “It’s nice to see that there’s been no noticeable drop off in freight so far due to high oil prices,” he pointed out.

Going forward, however, high oil prices – and the high gasoline and diesel fuel prices they create – will bear close watching over the next three to four months in terms of how they affect the U.S. economy as a whole and freight tonnage in particular, Starks said.

“Everyone is getting worried because pump prices are now front page news,” he noted. “Will it change the consumer’s buying habits materially? Will they start cutting back on purchasing goods in order to pay for fuel? We haven’t seen that shift yet but it bears watching.”

Starks also stressed that high oil prices affects the business community as well – something that’s cause for greater worry as the ongoing recovery is primarily being driven by U.S. manufacturing activity.

“Commodity prices for materials such as steel were already rising before oil prices spiked,” Starks noted. “And as petroleum is refined into many different components used by businesses, a rise in oil prices added to commodity pricing pressure just when businesses didn’t need it. The worry is business will begin to forgo hiring [workers] in order to pay for raw materials. That could have a domino effect.”

Another trend being noted by H. Peter Nesvold, an equity analyst with investment firm Jeffries & Co., is that even though freight tonnage is growing, loads are actually staying flat – with the dry van segment of the truckload market witnessing the weakness growth in load volume.

“While truck tonnage captures most of the headlines, loads are actually a more important indicator of volumes for TL carriers,” he said in a recent research brief. “We have been forecasting ‘flattish’ loads for 2011 versus an estimated consensus range of 0% to 6% [growth], with weakness appearing to be most prevalent in the dry van segment.”

Overall, in terms of truck freight tonnage, Jeffries & Co. continues to forecast tonnage growth of 3% to 5% for 2011.

Freight rates are another area of concern for Nesvold. Though TL pricing remains “firm” despite decelerating load growth – with revenue per mile, net of fuel, up 5.8% year-over-year in February, according to his data – sub-500 mile short-haul pricing is weak, down 4.7% year-over-year in February. That’s despite a 13.2% increase in sub-500 mile hauls this February, following January’s
11.3% gain.

“We continue to believe that volume leads price and that sustained pricing gains will, to a large extent, hinge upon a reacceleration in TL loads — and not just supply-side capacity rationalization,” he said. “Our full-year yield forecast remains 1% to 3%.”

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