Trucks at Work

The numbers look good, but will they stay that way?

New orders are growing significantly faster than inventories, and the Customers’ Inventories Index indicates supply chain inventories will require continuing replenishment.” –Norbert Ore, chairman of the Institute for Supply Management’s manufacturing business survey committee

Numbers are funny things, especially in trucking. Take fuel prices, for instance; as we all know ,the average cost of diesel fuel in the U.S. right now is over $3.71 a gallon and fast approaching the dreaded $4 per gallon mark (in California, though, it’s already there.)

From a daily trucking perspective, that’s a really bad number and foretells of trouble ahead as cash flow gets squeezed in order to find the extra dollars necessary to pay the fuel bill.

Yet, from a larger economic perspective, these high fuel prices – while still very bad – aren’t creating a “doomsday” scenario like what the industry faced back in 2008. With freight volumes still exceeding available truck capacity, carriers may actually be able to use the ongoing fuel price spike to get higher rates from their customers – an option not available three years ago during the last run-up in fuel costs.

Look at the spot rates TransCore is recording via its DAT Network of load boards from just a week ago. ASccording to TransCore’s data, truckload freight availability increased by 7.6% overall, while available flatbed loads surged a surprising 20%, concurrent to a 4.3% decline in flatbed truck capacity.

Dry van freight availability declined slightly, TransCore noted, posting a 3.4% dip while available dry van capacity increased 4.3%. In the refrigerated segment, load volume slipped by 1.7% compared to the previous week while reefer capacity increased by 3%.

Investment firm Robert W. Baird & Co. noted in its most recent Freight Flows brief that February hosted above-seasonal freight demand, “undoubtedly” influenced by what its analysts called “severe winter weather,” but still indicating favorable supply dynamics ahead to help support a healthy near-term outlook mid-single-digit growth in trucking rates.

“Spot truck freight demand has strengthened in the last few weeks, [with] truck supply/demand also tightening,” Baird noted. “These trends are above seasonal and, if sustained through quarter-end, are positive for broader freight environment.”

Then there’s the upward trend lines reading economic activity in the manufacturing and non-manufacturing sectors of the U.S. economy, according to data tracked by the Institute for Supply Management (ISM).

The group’s PMI index for the manufacturing sector increased in February for the 19th consecutive month, with the PMI reaching 61.4% – a level last achieved in May 2004, noted Norbert Ore, chairman of ISM’s manufacturing business survey committee

“New orders and production, driven by strength in exports in particular, continue to drive the composite index (the PMI),” he explained. “New orders are growing significantly faster than inventories, and the Customers’ Inventories Index indicates supply chain inventories will require continuing replenishment. The Employment Index is also increasing, moving above 60% for only the third time in the last decade.”

Anthony Nieves, chairman of the ISM’s non-manufacturing business survey committee, also touted some heady numbers.

“The NMI registered 59.7% in February, 0.3 percentage points higher than the 59.4 percent registered in January, and indicating continued growth in the non-manufacturing sector,” he said. “The non-manufacturing business activity Index increased 2.3 percentage points to 66.9 percent, reflecting growth for the 19th consecutive month and at a faster rate than in January.”

Good stuff, of course … yet still the worry the seesaw battle within Libya, the world’s 12th largest oil exporting nation, continues to keep oil prices above $100 per barrel. How will they ultimately affect what would’ve been a very rosy set of economic numbers?

“If [oil prices] start to slow the overall economy down, that’s different. It won’t even be an inflationary issue – it’ll act like a massive tax increase,” Eric Starks, president of research firm FTR Associates, told me earlier this week. “That also creates a major ripple effect in trucking, putting a squeeze on freight activity and fuel costs simultaneously. This isn’t where we want end up.”

Indeed, the American Trucking Associations (ATA), for one, is warning that rising fuel costs are going to impose a big fiscal burden on the trucking industry.

In 2010, the ATA estimated that the trucking industry spent some $101.5 billion on diesel fuel – a 28% increase over 2009. And even before the current spike in crude oil prices driven ostensibly by what’s becoming a civil war of sorts in Libya – the trade group projected that carriers would spend roughly $20 billion more at the pump in 2011, for a total fuel bill of $121.5 billion.

Them’s some mighty big numbers of the negative kind, to put it mildly. We’ll have to see if the industry can balance them off with freight rate increases going forward.