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Tonnage Buoyed by Holidays

Oct. 27, 2004
2005 freight forecast relies on whether retailers sell through their holiday stock

With tonnage flying high as trucks deliver holiday freight to distribution centers, and with the latest batch of economic indicators revealing a volatile consumer picture, it now looks like the ’05 outlook depends on whether or not retailers could sell through their stock.

Analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), told Fleet Owner retailers are looking at a ‘risky’ holiday season. “I would say with retailers their plans (projected holiday sales) may be higher than what will come in. They have to put in their orders for goods during the summer— and the economy was strong at that time. They might have had an overly optimistic outlook, but the consumer balance sheet may not be as strong as they anticipated,” Brady said.

For now, carriers are looking at an opportunity for a very profitable close of the year, Brady said. Recent indicators in the manufacturing sector underscore this.

New orders for manufactured durable goods rose a modest 0.2% to $195.7 billion in September, said the Department of Commerce yesterday. This followed a 0.6% decrease posted in August.

The good news in the manufacturing front is backlogs continued to grow last month, as unfilled orders increased 0.7% to $539 billion. Backlogs have grown for 13 of the last 14 months, which ensures over the road trucking will keep on rolling in the months ahead.

“That’s a good sign for production volumes in the future,” said CMVC’s Brady. “As long as that backlog expands, producers could increase output and sustain it.”

The value of shipments of manufactured goods decreased 1.2% to $199.1 billion— a reversal of a 1.9% increase in August.

Freight tonnage is on the rebound, according to a report released by American Trucking Associations. The seasonally adjusted truck tonnage index rose 0.6% in September, which follows a revised 1.8% decline in August.

“After a summer breather, truck tonnage bounced back in September,” said ATA chief economist Bob Costello. “September’s improvement was particularly impressive considering that Hurricane Frances, Ivan, and Jeanne all hit the U.S. during the month. It’s very reasonable to assume that minus the hurricanes, September’s increase would have been even stronger.”

Although the manufacturing and tonnage pictures are looking rosy, there continues to be some troubling indicators on the consumer side.

The Consumer Confidence Index slipped another 3.9 points in October, the Conference Board said yesterday. This followed another decline posted in September.

“Subdued expectations, as opposed to eroding present-day conditions, were the major cause behind October’s decline in consumer confidence,” said Lynn Franco, Conference Board director of the Consumer Research Center. “And while consumers’ assessment of the labor market this month showed a moderate improvement, the gain was not sufficient to ease concerns about job growth in the months ahead.”

Labor market perception appear to be consistent with disappointing unemployment rate results released by the Bureau of Labor Statistics, which since July decreased only 0.1% to 5.4%.

And in addition to the relatively stagnant unemployment rates, inflation threatens the buying power of consumers and thus, the freight forecast. Inflation rose another 0.2% in September, making the compound annual rate of inflation for the three months ended September to be 0.6%.

It won’t be until the first quarter of 2005 that any definitive conclusion can be drawn about whether retailers ordered their holiday goods to match demand effectively, said CMVC’s Brady. “A lot depends on the holiday season and if consumer spending growth meets retailers’ plans. If it’s (spending) above what was planned, there will be continued strong demand throughout the next year. However, if the business environment changes for fleets, they will [have to] make adjustments to their plans.”

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