Manufacturing bolsters freight outlook, despite broader economic woes

Manufacturing bolsters freight outlook, despite broader economic woes

Though more wild cards are being laid on the global economy’s playing table these days – especially in terms of Greece’s deficit crisis – the freight prospects for the U.S. trucking industry continue to stay strong, buoyed by resurgence in manufacturing activity

Though more wild cards are being laid on the global economy’s playing table these days – especially in terms of Greece’s deficit crisis – the freight prospects for the U.S. trucking industry continue to stay strong, buoyed by resurgence in manufacturing activity.

According to data tracked by the National Association of Credit Management (NACM), the manufacturing sector rebounded in September from a lackluster showing in August. The group’s Credit Managers’ Index (CMI) jumped from 57.2 to 58.9, noting that the doldrums that sank the manufacturing community in the summer appear to be lifting a little.

“The anecdotal evidence is that demand for new machinery is starting to pick up steam,” noted Chris Kuehl, NACM’s economist. “Many of the bigger trade shows in the manufacturing sector are reporting much larger attendance numbers than last year and those that are coming to these shows are far more interested in buying than before.”

That trend is reinforced by the CMI numbers, he added. “There is abundant evidence that business activity is ramping up again from the drops in August, and it is looking like much of the summer slowdown was prompted by all the political infighting,” Kuehl said.

Though this activity is not enough to assert that the crisis is over in manufacturing or that it can even resume its status as the driver of the U.S. economy, it does suggest that the manufacturing side of the economy is still playing an essentially positive role, stressed Kuehl – and that “positive effect” is also being felt in the freight markets

“It has been noted elsewhere that outbound container traffic is about 8 points higher than this time last year, indicating that the export sector is still performing well in many categories,” he said.

Though freight volumes tailed off in August this year, tonnage still remains higher than the levels achieved at the same point in time last year. The American Trucking Assns.’ (ATA) for-hire truck tonnage index declined 0.2% in August after falling a revised 0.8% in July. Yet August tonnage overall is up 5.2% versus the same month in 2010, with July’s tonnage up 4.5% compared to July last year.

“Freight has been going sideways for much of this year, but it isn’t falling significantly either, which suggests the U.S. economy just might skirt another recession,” noted Bob Costello, ATA’s chief economist.

The key “poker piece” for trucking in all of this is that capacity still remains well short of freight demand, Kenny Vieth, president and senior analyst at ACT Research Co., told Fleet Owner.

“As long as freight volumes exceed capacity, then trucking companies can still achieve a reasonable profit,” he said. “Though we’ve changed our forecast, with freight demand now expected to plateau rather than accelerate into 2012, that plateau will still produce enough freight to exceed capacity. That means trucker profits should still remain up.”

For example, ATA’s Costello said that the number of trucks operated by the truckload industry is still down about 12% from the height in late 2006, yet tonnage levels are about the same as in late 2006; thus capacity remains tight.

The big “wild card” in all of this, however, remains the deficit crisis in Greece, Vieth cautioned, as there is no telling what the impact on the global economy might be if that nation defaults on its debts.

“Right now, it’s become not so much a question of ‘if’ Greece defaults but ‘when,’” he explained. “So when this does occur, how will it impact the European Union? What happens to the rest of Europe – a major export market for the U.S. – at that point?”

For that reason, there is still a lot of vulnerability in the global economic situation – meaning it would not take much of a shock to send the U.S. economy, warned NACM’s Kuehl. “But for now, it is trending the right way again,” he stressed.

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