Slow going for trucking

Slow going for trucking

Freight volume continues to be sluggish going into the fourth quarter of 2007 -- and demand is not expected to improve anytime soon

Freight volume continues to be sluggish going into the fourth quarter of 2007 -- and demand is not expected to improve anytime soon.

Bob Costello, chief economist for the American Trucking Assns. (ATA), said the group’s for-hire truck tonnage index decreased 0.8% in August, after increasing 0.3% in July. This points to continued softness in the trucking industry, specifically as it relates to the weight of goods shipped. Year to date, the tonnage index is 2.2% lower than during the same period in 2006.

Costello said truck freight is expected to be lackluster during the 2007 fall freight season, which traditionally starts in mid to late August and peaks in October. “Economic growth just isn’t strong enough to significantly boost truck tonnage anytime soon,” he noted. “We’ve reduced our economic forecasts and don’t believe tonnage will consistently grow at the historical average of 2.5% seen over the last ten years until the second half of 2008.”

The slowdown in freight is a reflection of the sluggish U.S. economy as a whole, which is still struggling to manage a meltdown in the housing market along with higher energy prices.

“While the U.S. economy is growing at a moderate pace, recent financial market volatility and high energy costs have increased the uncertainty surrounding the near-term economic outlook, and weakness in the housing sector continues,” said Alan Graf, Jr., executive vp & CFO of FedEx Corp. “As a result of this weaker than anticipated economic environment, particularly its impact on the LTL freight market, we have reduced our earnings forecast by four percent for the full year.”

He said while FedEx’s overall revenues increased 8% to $9.2 billion in the first quarter of its 2008 fiscal year compared to fiscal 2007, with net income rising 4% to $494 million, operating margins declined to 8.8% from 9.2% due to the decline in trucking demand.

“While operating margin improved in the FedEx Express and FedEx Ground segments, consolidated margin declined due to a lower margin year over year at FedEx Freight and to network investments to increase capacity, improve service quality and increase productivity,” Graf said.

While LTL shipments increased 13% year over year due to the acquisition of Watkins (now re-branded as FedEx National LTL), average daily shipments dropped at FedEx Freight regional as demand was restrained by the slower U.S. economy. Overall, FedEx Freight’s margins dropped to 8.5% this year vs. 14.8% last year, said Graf

The one bright spot for carriers going forward is that the decline in trucking demand is reducing driver turnover somewhat. The ATA reported that turnover for large TL carriers dropped to a 116% annual rate during the second quarter, down from a rate of 127% in the first quarter.

“Soft freight volumes and looser capacity during the quarter likely helped lower the rate of turnover,” said ATA’s Costello. “However, the rate still remains high and hasn't been below 100% since the fourth quarter of 2002.”

Small TL carriers (with less than $30 million in annual revenue) saw their average turnover rate decrease to 90%, marking the lowest annualized rate in two years, he said. This was the first time the small fleet turnover rate dropped below 100% since the third quarter of 2005. Meanwhile, in the LTL sector, the annual turnover rate fell slightly to 13% in the second quarter, compared with 14% in the first quarter.

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