Freight volumes may finally be hitting bottom, according to recent tonnage data collected by the American Trucking Assns. (ATA), but indications are that freight levels may stay depressed for some time to come.
ATA reported that its advance seasonally adjusted for-hire truck tonnage index fell 2.4% in June, which followed a 3.2% decline in May. Year over year, however, for-hire tonnage was off 13.6% in June compared with the same month last year, surpassing May’s 11% year-over-year drop. June’s numbers also represented the largest year-over-year contraction to date in the current cycle, exceeding the 13.2% drop in April, ATA noted.
“While I am hopeful that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consistently,” said Bob Costello, ATA chief economist. “The consumer is still facing too many headwinds, including employment losses, tight credit, and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term.”
Costello also pointed out that inventories, relative to sales, are still too high in much of the supply chain, especially in the manufacturing and wholesale industries. “As a result, this is likely to be the first time in memory that truck tonnage doesn’t lead the macro economy out of a recession,” he said. “Today, many new product orders can be fulfilled with current inventories, not new production, thus suppressing truck tonnage.”
As a result, Costello believes truck tonnage is likely to remain choppy in the months ahead.
That analysis conforms to the views of other analysts tracking the freight market. Eric Starks, president of research firm FTR Associates, noted previously that his firm’s data indicates freight tonnage won’t start to grow significantly until the second half of 2010.
“A series of tonnage increases may tweak that outlook, moving up freight growth up into the second or maybe first quarter of 2010, but we don’t think it means we’ll see a return to good freight demand this year,” he explained. “There’s still too much inventory to work through. We’re at the bottom in terms of the [trucking] freight market decline, but we still think we’re going to be at the bottom for several months to come.”
That outlook is translating into a rough road for carriers to travel as the year progresses. TL carrier Covenant Transportation said its total revenue dropped 31% in the second quarter this year to $144.1 in comparison with the same period in 2008, with freight revenue alone (without the inclusion of fuel surcharges) decreasing 19.4% to $129.2 million in comparison with the second quarter last year. As a result, the company’s losses widened to $3.1 million in the second quarter this year, up from $2.3 million in the same period last year.
"Our results for the quarter reflected continued weak freight demand, excess tractor and trailer capacity in the truckload industry, and significant rate pressure from customers. These factors led to an approximate 9.9% reduction in average freight revenue per tractor per week,” said David Parker, Covenant’s chairman, president, and CEO, in the carrier’s second quarter earnings statement.
"The volume of shipper bid activity moderated from what we saw in the first quarter but weak demand and over-capacity kept pricing under pressure," said Douglas Stotlar, president & CEO of Con-way Inc. “Our truckload unit [Con-way Truckload] took steps in the quarter to right-size its fleet, selling 195 older tractors and aligning its resource base closer to market demand. However, until the market's excess capacity is resolved, we expect the pricing environment to remain competitive."
Con-way’s revenue slipped 21.2% to $1.06 billion in the second quarter compared to the same period in 2008, with operating income off 30.5%, dropping to $66 million, in comparison with the second quarter last year. Though the company remained profitable – posting net income of $31.5 million in the second quarter – the operating ratios for both its TL and LTL operations increased, which translates into lower profitability for both.
