Like a dawdling child, the economic recovery seems to be impossible to hurry along. “People genuinely feel like we have hit the bottom, but we don't expect things to come back very fast this time,” says Lana Batts, managing partner at Transport Capital Partners LLC, an opinion shared by many other industry observers and analysts. Still, there are some segments of the trucking industry that will be celebrating its arrival sooner than others. Here are some of the segments expected to get that good news first.
One of the first confirmed sightings of recovery is generally expected to be among the temperature-controlled carriers who did not experience declines in freight volumes as severe as some other segments. “The reefer business is essentially flat, which is by far the best performance in the industry,” notes Bob Costello, senior economist for the American Trucking Assns. “They won't see as big a recovery as some other segments because they did not fall as far, but they will see it. Of course, there is a lot of variability in refrigerated. Fleets delivering to grocery stores, for instance, have generally done better than those delivering to restaurants because people are eating at home more now.”
“The refrigerated sector always does the best,” says Noël Perry, senior consultant and principal with Transport Fundamentals. “Basic-ally, it is a recession-proof business.”
“We predict a sustained upturn in temperature-controlled freight volumes,” agrees analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), “although the upturn will not be even across customer and commodity groups. Households are eating at home more often, which is stimulating sales at grocery stores. Some large food companies are actually seeing an upturn in business. On the other hand, wholesalers' freight volumes are not expanding at the same rate because they also serve restaurants.”
“There has been a shift in the reefer market away from restaurants and toward grocery stores,” says Kenny Vieth, partner and senior analyst with ACT Research. “Refrigerated carriers have also made a big effort to be more efficient, which has helped them weather the recession.”
Some tank fleets will also be enjoying the recovery earlier rather than later, but like refrigerated fleets, there is a great deal of variation within this very broad trucking category that includes fleets hauling everything from melted chocolate to petroleum products and chemicals.
According to Brady, at least in the shorter term, fleets hauling chemicals will be among the first to feel the effects of the recovery. Although chemical output in September was 3.9% lower than the same period a year ago, he sees chemical freight volumes trending upward thanks to moderate growth in manufacturing output.
Perry is even more bullish on the chemical business. “Bulk chemicals have been off, but I expect them to come back rather aggressively,” he says. “The recession has generally hurt the manufacturing sector less than the consuming sector.”
Fleets hauling petroleum products, on the other hand, will at least remain relatively stable, according to Brady and Costello, who both see high unemployment keeping a lid on fuel consumption. “There are fewer people working so there are fewer people commuting back and forth to work every day,” notes Costello.
Thanks largely to declining inventory levels, which are beginning to restore the balance between output and demand, and to modest increases in exports due to the lower value of the dollar abroad, many fleets hauling both durable and nondurable goods will see some growth in the year ahead, according to analysts. “The general freight environment, local, regional and linehaul is improving, since inventories are approaching equilibrium throughout the supply chain,” notes Brady.
“Dry van freight volumes within the production segment of the supply chain will expand at faster growth rates than freight volumes through the wholesale and retail segments of the supply chain due to exports,'' Brady continues, “which are directly or indirectly tied to about 25% of industrial production.”
“The dry van business is generally off about 18%, but it depends upon who you serve,” observes Perry. “If you haul for Wal-Mart or other discounters, you were hurt first, but as the recession deepened and fuel prices dropped, the big box retailers did better because more people who shopped elsewhere started shopping there, while the upscale segments did worse. On the upturn, the opposite will be true.”
REGIONAL AND LTL
Brady sees local and regional carriers, including LTL, recovering at about the same moderate rate as the truckload general freight carriage business in 2010, with fleets serving general merchandise stores, food and beverage stores, and other non-retail stores doing better than those delivering building materials, garden supplies, appliances or electronics.
Perry, on the other hand, believes that LTL carriers “could benefit disproportionately” during the recovery because they handle more of the unplanned and emergency resupply business. “By the end of November, retailers know what is hot and what is selling, but if they want to restock those items they do not have time to consolidate orders into truckloads, as they would usually do,” he says, “so they turn to the LTL carriers to deliver smaller lots. The same thing happens in manufacturing. Manufacturers tend to order smaller lots when times are tough, just enough to keep things going.”
“Generally speaking, LTL carriers that were strong going into this recession are doing better now, as well,” notes John Burton, vp of the transportation sector for ACT Research. “Today, the LTL business is really a tale of two groups, YRC Worldwide and everybody else. YRC lost about 46% of its tonnage over the last six quarters. There was tremendous excess LTL capacity and there still is some excess, so a lot hangs on what happens to YRC.”
WE MADE IT
One perhaps less visible indicator of general recovery in the trucking industry is the number of fleets deciding to stick it out and stay in the business, according to Lana Batts. “Fleets that were considering getting out of the business are now taking themselves off the market,” she says. “The thinking seems to be, ‘Since we've hit the bottom, why not wait and see what happens on the way back up?’”
Although Kenny Vieth says it is “somewhat premature” to talk about recovery, he agrees that the industry may at last see “some silver linings instead of clouds” by the second half of 2010. Vieth also has high praise for the carriers that have made it this far. “To be even a little trucker takes a whole lot of skill,” he says. “You have to know your costs [and manage to them] or you just won't make it.
“Since 1999, fleets have seen equipment devaluations, credit crises, insurance crises, fuel-cost crises and the worst economic downturn in three decades,” he continues. “If you are still in this business, you should pat yourself on the back because you've been through a lot and survived it all.”
Freight volumes on the recovery list
When it comes to seeing recovery in the short term, much depends upon what you're hauling and for whom. Here are some of the products and commodities that are expected to grow in volume first as 2010 unfolds, according to analyst Chris Brady, president of Commercial Motor Vehicle Consulting. Most growth will be in the moderate range or from 1 to 3%. Only retail grocery sales are expected to see growth in excess of 3% in the short term.
- General merchandise
- Health and personal care items
- Computers/peripheral equipment
- Food and beverage products
- Primary metals
- Chemical products
- Some other durable and nondurable goods