Freight volumes still falling

Though the decline in freight volumes slowed considerably in June, the downward trend in tonnage continues, keeping the pressure on both rates and profits for carriers

Though the decline in freight volumes slowed considerably in June, the downward trend in tonnage continues, keeping the pressure on both rates and profits for carriers.

According to data compiled by the American Trucking Assns., (ATA), truck tonnage decreased 0.1% in June, marking the third consecutive month-to-month drop; tonnage fell 1.3% percent in May and has fallen 3.5% since March. Compared to June 2006, volume is down 3.4%.

“While the government reported that the economy grew at a 3.4% annualized rate in the second quarter, that strength did not filter into the transport sector,” said ATA Chief Economist Bob Costello. “Our tonnage index fell 1.8% during the second quarter from the first quarter and is 3.2% lower than the same quarter in 2006.”

Costello attributed this difference to several trends. First, the so-called “goods” economy, which is more pertinent for transportation companies and excludes services and adds in imports of goods – unlike the GDP calculation by the government – grew at a slower 2.6% annualized rate in the second quarter, compared with the overall 3.4% economic growth rate.

Second, the housing sector continues to be a bigger drag on motor carriers than the economy at large, as residential investment fell 9.3% during the second quarter, according to Bureau of Economic Analysis. Third, manufacturing production, once adjusted for the weight of the goods instead of the value, continues to contract on a year-over-year basis.

“These three points in particular lead to a very tough second quarter for the trucking industry,” said Costello. “Unfortunately, with housing still weakening, the improvement in tonnage during the second half of the year will likely be less than previously thought.”

For carriers, the slowdown in freight volumes is affecting both pricing and profits. “The soft market for LTL freight remains highly competitive and price-sensitive, which has put pressure on yields,” said Douglas Stotlar, president and CEO of Con-way Inc. “Given the market conditions we have been experiencing, we expect LTL freight demand to remain restrained through the remainder of 2007 leading to moderate year-over-year volume growth.”

“For the last year, TL industry freight rates have been flat-to-lower due to two things -- the immense truck pre-buy in 2006 and a softer freight market,” added Clarence Werner, chairman of TL carrier Werner Enterprises. The pre-buy to avoid expensive new low-emission truck engines “added 6% more trucks than are normally produced in the years 2005 and 2006 – some 170,000 extra trucks – vastly expanding capacity, while the freight market softened due to weakness in the housing and automotive sectors, inventory tightening, and moderating growth in the retail sector.”

Over time, lower new truck production should help place the supply of trucks more in balance with the freight market, said Werner, but that will occur slowly. “Over the same period that TL freight rates have been depressed, inflationary and operational cost pressures have severely challenged truckload carriers,” he said. “If this environment continues in the near term, it becomes more likely that trucking company failures will increase. However, it also becomes more likely that when the market turns, industry freight rates will rebound and increase more rapidly than normal.”

TAGS: News
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.