Image

Outlook remains choppy-- for economy and truck freight

June 6, 2011
Experts are saying motor carriers should expect uneven conditions where truck freight is concerned for the foreseeable future. That is the case even as the fundamentals supporting strong freight demand remain intact

Experts are saying motor carriers should expect uneven conditions where truck freight is concerned for the foreseeable future. That is the case even as the fundamentals supporting strong freight demand remain intact.

“Though industry pricing continues to trend positively, slowing demand trends have limited the upside opportunity in our 3% to 5% rate growth expectation in contractual truckload rates for 2011,” Benjamin Hartford, analyst with Wall Street investment firm Robert W. Baird & Co., noted in the firm’s most recent Freight Flows brief.

“That said, industry conditions remain favorable for carriers given tight capacity and lean inventory levels, which can reaccelerate pricing if a strong demand catalyst were to emerge,” he added.

Weak employment data released by the U.S. Bureau of Labor Statistics for May, showing that just 54,000 jobs were added last month after 232,000 in April, is the latest piece of evidence that the U.S. economy's “soft patch” is proving softer than feared, said Nigel Gault, analyst with consulting firm IHS Global Insight.

“The slowdown in job creation reflected weakness across the board [and] there was no one culprit to single out,” Gault noted, pointing out that the U.S. unemployment rate has now increased to 9.1%.

“The loss of economic momentum probably reflects the cumulative impact of surging commodity costs, which have squeezed consumer spending power and raised business costs, leading employers to become more cautious in hiring,” Gault added. “We expect U.S. GDP [gross domestic product] growth of just 2.0% in the second quarter, little different from 1.8% in the first [quarter].”

Yet Eric Starks, president of research firm FTR Associates, told Fleet Owner that this “up-and-down” trend has been a hallmark of the current economic recovery for some time – and will be a hallmark of the freight market as well.

“We’re going to see some choppiness in the overall economy and in the freight numbers, too,” Starks said. “How much the recent employment report and other data affects freight activity overall is unclear at this moment, but the fundamentals [for freight demand] are still solid.”

Indeed, IHS’s Gault stressed that the weak employment report, among other economic metrics, may make things look worse than they actually are.

“It will naturally lead to concerns that this is more than a [economic] soft patch, perhaps the dreaded double-dip downturn,” he said. “But we still take the view that we are seeing a soft patch within an underlying modestly paced recovery. Fortunately, we are now seeing some relief on commodity prices; if this relief persists, we expect growth to improve in the second half of the year.”

One “crumb of comfort” in the recent employment report, added Gault, is that the workweek held steady overall, and actually rose in manufacturing. “In an economy tipping into recession, the workweek is normally one of the first indicators to head south,” he said.

Baird’s Hartford said truck freight trends are now “normalizing” from robust activity between February and March of this year, consistent with what Baird describes as a “slow-growth” economy. For example, Baird’s Freight Index has now dropped back to 2% growth year-over-year for the second quarter as opposed to the 5% year-over-year pace exhibited in the first quarter, he noted.

“Southeast and Midwest [truck freight] demand levels remain relatively healthy, while West Coast demand improving though still relatively soft,” Hartford added. “Public truckload carriers remain optimistic that seasonal volume build will continue through the remainder of 2Q11, though pace of seasonal build remains uncertain [and the] likelihood for pricing above expectations muted.”

However, he pointed out that capacity tightness persists, which is supporting 3% to 5% pricing growth expectations. However, the degree of capacity tightness has moderated as less robust demand trends emerge. So an upside to expected pricing growth appears muted absent a reemergence of robust volume trends, Hartford added.

About the Author

Sean Kilcarr | Editor in Chief

Sean previously reported and commented on trends affecting the many different strata of the trucking industry. Also be sure to visit Sean's blog Trucks at Work where he offers analysis on a variety of different topics inside the trucking industry.

Voice your opinion!

To join the conversation, and become an exclusive member of FleetOwner, create an account today!

Sponsored Recommendations

AI is Scary for Your Competition - How Adopting New Technologies Can Provide a Competitive Edge

Unlock the power of AI and leave your competition behind! Join our webinar to discover how adopting cutting-edge AI technologies in transportation can enhance safety, boost efficiency...

Proactive Fuel Risk Management Guide

Download this informative guide to explore innovative techniques to prevent fuel fraud and misuse before it happens. Understand how to save 11% or more in fuel-related costs while...

Going Mobile: Guide To Starting A Heavy-Duty Repair Shop

Discover if starting a heavy-duty mobile repair business is right for you. Learn the ins and outs of licensing, building, and marketing your mobile repair shop.

Increase your fleet’s fuel economy with the right lubricants

See how Mobil Delvac™ oils boosted GP Transco's fleet.