Credit and freight

Nov. 1, 2008
While most of the world seems stunned by the depth and breadth of the current economic crisis, it comes as no surprise to those in trucking. After enduring shrinking freight volumes for most of 2007, the for-hire portion of the industry thought the worst was over as levels began to slowly climb over the first six months of this year. But come the summer, freight plunged again. Freight levels are the

While most of the world seems stunned by the depth and breadth of the current economic crisis, it comes as no surprise to those in trucking.

After enduring shrinking freight volumes for most of 2007, the for-hire portion of the industry thought the worst was over as levels began to slowly climb over the first six months of this year. But come the summer, freight plunged again. Freight levels are the canary in the coal mine when it comes to economic health. Be it recession or recovery, the movement of goods is one of the leading indicators of economic health.

One of the lagging indicators is gross domestic product (GDP), which must shrink for two consecutive quarters before economists officially declare a recession is underway. Or rather before they tell us what we already know. Carriers went from slow freight growth to dropping tonnage as 2008 progressed, and the economists now admit that the country has moved from slow GDP growth in the first half of the year to “a negative rate” for the last half.

The prediction is GDP will continue to fall through the middle of 2009, or for four straight quarters, making this downturn the longest since the early 1980s. Most of the world, though, is focused on the credit crunch, wildly fluctuating stock markets and bank failures rather than production. Pictures of Wall Street in panic mode are clearly much more dramatic than negative growth as an abstract measure of economic creation.

I've heard some in the industry claim that these credit problems aren't really a concern since “trucks move freight, not credit.” That may sound reassuring, but it's whistling in the economic dark. At least in the current situation, the two are tightly linked.

Subprime mortgages poisoned credit markets when they began failing. As house values began dropping, foreclosures predictably increased and lenders became skittish about home loans of any type, further hurting residential markets.

The housing market drives a lot of freight. Even consumers who are paying their mortgages and staying in their homes pull back on purchasing as they watch the value of their one significant and supposedly safe investment falling. Just ask automakers, who are experiencing historic drops in sales, which again has an impact on both freight into their factories and finished cars headed to dealerships. And heading into the peak holiday season, even the discount retailers are reporting shrinking sales.

The result? Overall freight tonnage is predicted to fall in 2009 for the third straight year. According to Noel Perry with FTR Assocs., trucking can expect another 1.5 to 2% decline in tonnage next year, making the last two years and next the worst the industry has experienced since 1982.

There are a few bright spots, chief among them a sharp drop in fuel costs. Optimists among us also point to an expected increase in truck productivity as lower traffic levels reduce congestion delays.

But perhaps the best motivation to get through this rough patch is that the recession is shaking out a lot of capacity. When it ends, as downturns always do, fleets will see capacity among the survivors tighten quickly. As Jon Starks, another FTR analyst, recently put it: “There are some good years to come if people can just get through this.”

E-mail: [email protected]
Web site: fleetowner.com

About the Author

Jim Mele

Nationally recognized journalist, author and editor, Jim Mele joined Fleet Owner in 1986 with over a dozen years’ experience covering transportation as a newspaper reporter and magazine staff writer. Fleet Owner Magazine has won over 45 national editorial awards since his appointment as editor-in-chief in 1999.

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