Fed Notes Freight Bottlenecks

Fed Notes Freight Bottlenecks

The Federal Reserve released a broad overview of late July and August economic activity that underscored that the demands of the buzzing manufacturing sector are outstripping the trucking industry’s capacity.

“The generally robust activity in manufacturing boosted demand for transportation services in many areas,” the Fed stated. “Cleveland, Chicago, St. Louis, and Kansas City reported strong demand for overland shipping services, which resulted in bottlenecks in freight movement in some areas.”

Several recent economic reports point to growing backlogs in manufacturing and lean inventories, despite strong output and productivity rates, and the sector’s rising job base. Of the manufacturing sector, durable goods and capital equipment showed the highest demand.

On the consumer side, the Fed noted a slowing in retail sales growth, including during the back-to-school shopping season. “Sales of back-to-school items, especially children’s apparel, reportedly were disappointing for retailers in New York, Cleveland, Richmond, Chicago, and St. Louis,” the Fed said.

Consumer spending is significant because it comprises approximately two-thirds of the national gross domestic product, and pulls the supply chain.

Despite the slower-than-expected indicators in payroll expansion and consumer spending, Martin Labbe, president of Martin Labbe Associates, isn’t anticipating a consumer decline. In fact, he said this is consistent with leaner, meaner businesses. “Although we have not regained all the jobs lost since the ’01 recession, the point is should we have regained all these jobs? The answer is no— after the cutbacks they [businesses] are getting back to a more efficient production of goods with fewer people,” he said.

Modest growth in consumer spending and job creation, coupled with a growing economy, ensure the strength of freight outlook in the foreseeable future, Labbe explained. “We should have very solid freight patterns through the end of December. It’s typically toward the end of the year we’ll see some falloff, but that’s seasonal,” he said.

Among the biggest concern on the consumer side is a rise in prices— particularly for fuel. “The reports indicated that consumer prices were generally flat or up modestly in late-July and August, although they continued to cite noticeable price increases for oil, natural gas, steel, lumber, cement, concrete, and other building materials,” stated the Fed.

However, even as energy prices are putting the squeeze on consumers, Labbe is confident that the economy will overcome this. “With fuel prices the concern going into the future, if home heating oil remains as high as expected, and if we have a severe winter, that could cut into consumption of other goods,” he said. “But even with that we still have consumer growth with more jobs. Increasing payroll per hourly pay will offset this.”

In fact, even a slowdown in the consumer side of growth could actually be a blessing in disguise, Labbe indicated, perhaps giving a chance for an already-overexerted trucking industry to catch up.

Bob Costello, chief economist for the American Trucking Assns. (ATA), anticipates that going into ’05 the surging manufacturing sector will start slowing to a more sustainable pace.

“Looking at Class 8 sales, we hear that most are replacements. We have no idea how much capacity was added,” Costello said.

Because OEMs are indicating that the capacity growth of carriers ranges from modest to nonexistent, even slow growth in the manufacturing industry is more than enough to keep freight tonnage high.

“If capacity doesn’t grow as fast as the manufacturing industry, carriers are going to be extremely busy on a per-truck basis,” Costello explained. “I expect things will slow in terms of demand but I think capacity is going to be very tight— even with demand growth slowing a bit.”

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.