Truckload volume, pricing remains solid

Recent industry reports indicate that truck capacity continues to tighten, according to Peter Nesvold.

Recent industry reports indicate that truck capacity continues to tighten, according to Peter Nesvold.

Nesvold, an analyst with Jefferies Equity Research Americas, reasons there is a “further tightening of trucking capacity” under way and that the firm is “hearing that the strength in demand continued through November.”

To support that analysis Nesvold pointed to seasonally adjusted (SA) truckload volumes, as recently released by the American Trucking Assns. (ATA), exceeding expectations in October. In addition, October truck tonnage posted a solid 5.7% year-over-year (YoY) gain along with supportive data from other “channel checks.”

According to Nesvold, ATA reported that SA loads for large truckload (TL) carriers ( greater than $30 million in revenue) were up 3.2% YoY in October vs. the firm’s 2 to 3% estimate and +3.1% YoY in September.

SA industry-wide loads remained solid in October and posted the strongest YoY reading since decelerating in August, following the S&P sovereign downgrade.

“We have been forecasting flattish loads for most of 2011 vs. an estimated consensus range of 0 to +3%,” Nesvold pointed out. “Of the trailer types, bulk chemicals posted the largest YoY increase in October loads (+12.4% YoY vs. +12.1% YoY in September).”

By contrast, dry- van volumes remained negative on a YoY basis, slipping 0.6% YoY in October vs. -0.9% YoY in September.

Separately, Nesvold noted, ATA found that SA truck tonnage was up 5.7% YoY in October, following September’s +5.8% YoY gain. However, he said Jefferies’ “full-year tonnage forecast remains unchanged at +3 to +5% YoY.”

As for pricing, Nesvold said it “decelerated modestly, but held firm.”

He reported that revenue per mile, net of fuel, was up a solid 4.2% YoY in October vs. +5.2% YoY in September. But that was the slowest YoY growth rate since February 2010.

Going deeper into the data, Nesvold showed that short-haul (less than 500 mi.) pricing remained weak, down 7.0% YoY in October (vs. -4.5% YoY in September), and dry-van pricing rose 6.6% YoY (vs. +8.4% YoY in September).
“Our sense is that this strength was concentrated in the medium-haul segment of the market,” he noted.

“Our full-year yield forecast has been roughly +1% to +3% for contracted freight-- slightly higher for spot. Heading into 2012, we initially believe the industry can hold low-single-digit price increases next year.”

Nesvold also relates that truckload fleet utilization “dropped back into negative territory.” He said average miles per truck in October were down 1.6% from a year earlier; that followed a 1.2% YoY rise in September.

“Furthermore, fleet utilization has trailed year-earlier levels in seven of the last nine months,” he stated, “We attribute this primarily to an increasingly aged fleet industry-wide, which we believe is weighing on productivity”

Taking a look at less-than-truckload (LTL) tonnage, Nesvold said it has remained robust—but pricing has softened in that segment.

“In October, LTL tonnage climbed 17.6% YoY, notching its tenth consecutive double-digit YoY gain,” he pointed out. “Meanwhile, LTL pricing (revenue per ton) increased 0.5% YoY in October, which was 210bps slower than September’s 2.6% YoY pace.”

Speaking for Jefferies, Nesvold advised that “we care most about dry-van truckload loads and pricing as well as trends in the short-haul segment, as most of the public truckload [carriers] are skewed toward these areas.”

That being said, he observed that dry-van pricing continues to track at the high-end of the firm’s expectations ( +6.6% YoY in October), whereas the short-haul segment remained negative (-7.0% YoY in October). Meanwhile, dry -vans loads slipped 0.6% YoY in October, its 16th consecutive YoY drop.”

The upshot, according to Nesvold, is that Jefferies’ “sense is that buy-side expectations for full-year truckload rate increases have faded from 8%-10% earlier this year (a range that we were highly skeptical about) to a more reasonable 2%-3% currently.”

“Looking ahead,” he added, “we are turning more optimistic that buyside expectations have fallen so low, and that truckload fundamentals might actually be starting to trend higher, that the group may have bottomed out.”

Click here to view the full Jefferies report on truckload loads and pricing referenced here.

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