Fleetowner 908 Truckdockssm
Fleetowner 908 Truckdockssm
Fleetowner 908 Truckdockssm
Fleetowner 908 Truckdockssm
Fleetowner 908 Truckdockssm

Growing economic gloom clouds freight picture

Aug. 3, 2011
A downward revision in gross domestic product (GDP) growth for the first quarter this year – alongside lower “actual” GDP growth in the second quarter, higher oil prices, and more job cuts – may slow freight volumes significantly for the remainder of 2011, according to various experts

A downward revision in gross domestic product (GDP) growth for the first quarter this year – alongside lower “actual” GDP growth in the second quarter, higher oil prices, and more job cuts – may slow freight volumes significantly for the remainder of 2011, according to various experts. However, those lower volumes are still projected to be greater than existing trucking capacity, meaning carriers should be able to maintain the upper hand in terms of freight rates for the rest of the year.

Consulting firm IHS Global Insight noted that revised U.S. economic data indicates GDP only increased 0.4% in the first quarter, well below the previous 1.9% projection, while second quarter “actual” GDP came in at 1.3% versus estimates of 1.6%.growth.

“Immediate growth prospects look bleak given the lack of underlying momentum and the damage to confidence from the debt-ceiling standoff,” said Nigel Gault, an analyst with IHS.

“Since the second quarter of last year, U.S. growth has averaged only 1.6%,” he added. “And while there was a weak bounce back from the first to the second quarter of this year, some of the second-quarter growth may have been due to one-off factors, such as strong defense spending and a bounce from bad weather, which will likely not spill over into the third quarter.”

Combining a deeper recession with the anemic recovery, real GDP has not even regained its previous peak yet, he stressed.

“There is little doubt that, since the summer of 2010, U.S. growth has faltered,” Gault noted. “The only question now is how much weaker could things get and how long will the very soft patch last. As a result, prospects for a second-half pickup are fading fast.”

Kenny Vieth, president and senior analyst with ACT Research Co., told Fleet Owner that without even changing anything in his firm’s overall economic forecast, the downgrade in GDP numbers automatically reduced the outlook for U.S. economic growth from 2.5% to 1.8%.

“Our original forecast in January this year called for overall U.S. GDP growth of 3.2% for 2011,” he said. “Now it will probably be revised down to 1.6%. Certainly such slower growth will lead to a slowdown in freight.”

That freight slowdown is also due to the significant uptick in oil prices this year, Vieth pointed out, which went from $85 per barrel in January up to $115 by late spring and only recently declined back down to around $92 to $93 per barrel.

“Roughly every penny’s worth of change to the price of gasoline or diesel equates to $2 billion more in annual spending of fuel,” he explained. “Right now, gasoline and diesel prices are up about 75 to 80 cents more per gallon than last year. That equates to about $160 billion a year extra being spent by consumers on fuel and not on goods – purchases that translate into freight.”

That trend showed up in metrics tracked by Cass Information Systems, which reported this week that freight shipments declined 3.7% in July, signaling that the already sluggish economy is continuing to worsen.

“Freight expenditures dropped 2.1% in July, unemployment remains high, the housing market is not recovering, and manufacturing is on a downhill trajectory,” Cass added in its Freight Index Report for July. Both fourth quarter 2010 and first quarter 2011 GDP figures were reduced substantially, with the first quarter revised to a paltry 0.4% growth rate – meaning population grew faster than the economy in the first quarter, the firm added.

“Every economic indicator that is widely tracked to measure the performance of the economy is still well below pre‐recession levels and the recovery has almost lost steam,” Cass added. “Obama’s stimulus programs and the Federal Reserve’s money infusions have not been enough to jump start or maintain the recovery [and] the terms of the settlement in the narrowly‐averted debt ceiling crisis will not allow for any new government intervention before the elections next year.”

A sudden and unexpected burst in private-sector downsizing isn’t helping the outlook, either, as these moves pushed the number of announced job cuts to a 16-month high of 66,414 in July, according the numbers tracked by global outplacement consultancy Challenger, Gray & Christmas.

“The 66,414 job cuts last month were up 60% from the previous month, when employers announced plans to shed 41,432 workers,” the firm noted. “The July figure was 59% higher than the 41,676 layoffs recorded in July 2010. It was also the largest monthly total since March 2010, when 67,611 job cuts were announced by the nation’s employers.”

While the pace of downsizing in 2011 remains slower than 2010, it is quickly gaining ground, noted John Challenger, CEO of Challenger, Gray & Christmas.

“So far this year, employers have announced 312,220 cuts, 8% fewer than the 339,353 announced in the first seven months of 2010,” he said. “[But] that gap has decreased significantly since the end of the first quarter when year-to-date job cuts were 28% lower than the same period a year ago.”

Still, ACT’s Vieth believes that if the trucking industry continues on its current course of only replacing aging equipment and not expanding capacity, it should retain the advantage in terms of freight rates.

“Despite all of this economic data, we’re not talking about a contraction in the freight market – we’re talking about a slowdown in freight,” he stressed. “That’s a very important distinction.”

About the Author

Sean Kilcarr | Editor in Chief

Sean reports and comments on trends affecting the many different strata of the trucking industry -- light and medium duty fleets up through over-the-road truckload, less-than-truckload, and private fleet operations Also be sure to visit Sean's blog Trucks at Work where he offers analysis on a variety of different topics inside the trucking industry.

Sponsored Recommendations

Tackling the Tech Shortage: Lessons in Recruiting Talent and Reducing Turnover

Discover innovative strategies for recruiting and retaining tech talent in the trucking industry at our April 16th webinar, where experts will share insights on competitive pay...

Stop Sweating Temperature Excursions

Advanced chemical indicators give you the peace of mind that comes from reliable insights into your supply chains. Compromised shipments can be identified the moment they arrive...

Stop Sweating Temperature Excursions

Advanced chemical indicators give you the peace of mind that comes from reliable insights into your supply chains. Compromised shipments can be identified the moment they arrive...

How Electric Vehicles Help You Prolong the Life of Your Fleet

Before adopting electric vehicles for commercial/government fleets, prioritize cost inquiries. Maintenance is essential; understand the upkeep of EV fleets. Here’s what you need...

Voice your opinion!

To join the conversation, and become an exclusive member of FleetOwner, create an account today!