Trucking remains dogged by slow freight growth

Freight volumes continue to slow in the face of a still-sluggish economy, according to fleets and trucking experts alike. And this trend line should hold for the remainder of the year.

“Freight demand was relatively consistent throughout the third quarter, [but] demand, however, did not outpace available capacity to the same degree as [in] the second quarter,” stated Kevin Knight, chairman & CEO of Knight Transportation in the truckload carrier’s most recent earnings report.

Freight market trends continued to be positive in the third quarter and were better than those in third quarter ‘09, echoed Werner Enterprises in its most recent earnings statement. Yet the truckload carrier said they were not as strong as in the second quarter-- and through October softened further from volumes experienced in the third quarter.

“We believe the larger shippers in our network may be shifting freight shipment volumes to large carriers in an effort to secure capacity going into 2011, Werner noted. “The softening seems to be driven more by smaller company shippers being more cautious with their inventory and overall volume projections.”

The slowing of freight is also reflected in slippage recorded by the Institute for Supply Management’s (ISM) latest inventories index. It registered 53.9% in October-- 1.7 percentage points lower than the 55.6% reported in September.

Yet the ISM data also indicates manufacturing continued to grow in October and at an accelerated rate, Its purchasing managers index (PMI) metric registered 56.9% last month; an increase of 2.5 percentage points over September’s reading of 54.4%, Any reading above 50% indicaing that the U.S. manufacturing economic sector is generally expanding, said Norbert Ore, chairman of the ISM manufacturing business survey committee.

“The manufacturing sector grew during October, with both new orders and production making significant gains,” Ore added. “Since hitting a peak in April, the trend for manufacturing has been toward slower growth. However, this month’s report signals a continuation of the recovery that began 15 months ago, and its strength raises expectations for growth in the balance of the [fourth] quarter.”

Jon Langenfeld, senior transportation analyst with investment firm Robert W. Baird & Co., noted in his recent “Freight Flow” brief that while trucking’s “peak season” for freight demand isn’t turning out to be as strong as expected, current freight levels may be sustainable through November.

“An early peak in late summer [should] prevent a spike in fourth quarter freight demand,” he explained. “However, lean inventories and a healthier economy may support freight activity deeper into the fourth quarter than normal.”

As trucking transitions into the fourth quarter and then into 2011, Langenfeld indicates three key trends will bear watching:

• Industrial demand trends in recent months have been more favorable than retail/consumer related trends.
• The 2010 peak season demand clearly occurred much earlier this year, but questions remain as to how long the current demand trends will be sustained into the fourth quarter.
• Despite the weaker peak season, domestic pricing momentum – particularly in the truckload sector – continues to gain steam.

Langenfeld added that Baird's Domestic Freight Index dropped to 4.3% year-over-year in September. That’s compared to 4.8% year-over-year in August and 4.8% year-over-year for the third quarter of 2010 compared to the same period of 2009. He stressed that all is consistent with a slowing demand in growth that will occur as inventory replenishment subsides and shippers align themselves for a slow-growth economy.

Chris Kuehl, economic advisor for the National Association of Credit Management (NACM), also pointed out the general economic outlook boils down to an economy stuck in slow gear.

“In the overall U.S. economy, there is evidence some progress is being made, but the pace has been excruciatingly slow,” Kuehl explained. “The latest data on jobs show that layoffs have slowed, but there is still not much evidence that hiring is underway.

“Durable goods orders were up, but only because there was another surge in orders for aircraft,” he continued. “The latest results from the PMI show only modest gains; this pattern is the same in almost every current survey or study.”

Kuehl said that while the good news is evidence of economic progress, the bad news is that it is far too slow to make a big impact on the issue of greatest public concern for Americans: Lack of new jobs

“It will take a growth rate above 5% to erode the unemployment numbers,” he noted. “But the Commerce Department’s recent numbers show that the economy grew at only 2% in the third quarter.”