Analysts: Second half still looks positive for trucking

June 28, 2011
Despite a 2.3 percent drop in the For-Hire Truck Tonnage Index, analysts remain positive about the second half of 2011

Even in the face of continued sour news on the current state of the economy, trucking analysts nonetheless view motor carriers being bolstered in this year’s second half from at least a moderate rise in economic activity. For example, despite a 2.3% drop in the American Trucking Assn.’s (ATA) monthly For-Hire Truck Tonnage Index, ATA chief economist Bob Costello remains “cautiously optimistic” that freight volumes will improve in the second half of the year-- along with economic activity.

“With oil prices falling and some of the Japan-related auto supply problems ending,” said Costello, “I believe this was a soft patch and not a slide back into recession-- and we should see better, but not great, economic activity in the months ahead.”

The 2.3% drop in the seasonally adjusted (SA) index came on the heels of a revised slip of 0.6% recorded in April. That was a tad less than the 0.7% decrease ATA had reported on May 25. The latest decline put the SA index at 112.3 (2000=100) in May, down from the April level of 114.9.

However, the not seasonally adjusted index (representing the change in tonnage actually hauled by fleets before any seasonal adjustment) equaled 115.9 in May-- or 2% above the previous month.

And compared with May 2010, SA tonnage climbed 2.7%, although ATA noted this was the smallest year-over-year gain since February 2010. In April, the tonnage index was 4.8% above its year- earlier mark..

“Truck tonnage over the last four months shows that the economy definitely hit a soft patch this spring,” Costello added. “With our index falling in three of the last four months totaling 3.7%, it is clear why there is some renewed anxiety over the economic recovery.”

Remarking on the ATA report in his latest Industry Note, Jefferies & Co. analysts Peter Nesvold said that “Overall, the May tonnage report was mixed; however, it was weaker than expected. We continue to forecast tonnage growth of +3% to +5% in 2011.”

He noted that while ATA releases tonnage data “roughly two to three weeks before load and pricing data,” his analysis includes tonnage data through May and load/pricing data through April. That being said, Nesvold stated that “while truck tonnage captures most of the headlines, loads are actually a more important indicator of volumes” for truckload (TL) carriers.

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According to Nesvold, the YoY growth in loads for large TLs (>$30mn in revenue) decelerated from +1.7% YoY in March to +0.4% YoY in April. He said bulk chemicals was the only TL trailer type in April to post a YoY gain in loads (+12.9% YoY).

Meanwhile, TL dry-van volumes continued to fall, contracting 6.7% YoY in April (vs. -7.3% YoY in March), noted Nesvold. “Recall that our work has found that TL loads typically peak out earlier than tonnage as the cycle matures,” he pointed out. “We have been forecasting flattish loads for 2011 vs. an estimated consensus range of 0% to +6%. Weakness appears to be most prevalent in the dry-van segment.”

On the other hand, Nesvold pointed out that “Notwithstanding decelerating load growth, we remain impressed with the strength in TL pricing. Revenue per mile, net of fuel, was up 6.7% YoY in April (vs. +6.2% YoY in March). Inside the data, however, short-haul (less than 500 miles) pricing is weak, down 4.4% YoY in April (vs. -3.9% YoY in March).

“We continue to believe that volume leads price and that sustained pricing gains will, to a large extent, hinge upon a reacceleration in TL loads — and not just supply-side capacity rationalization,” he added. “Our full-year yield forecast remains +1% to +3% (vs. consensus in the +3% to +5% range), although we note that year-to-date pricing has held better than expected into weaker loads.”

Nesvold also stated that dry-van pricing remains strong. “Despite the slowdown in volumes, dry van pricing jumped from +9.6% YoY in March to +10.5% YoY in April. We think these gains are strongest in the long- and medium-haul portions of the market — not short-haul.”

Rates are also looking good according to the Second Quarter Business Expectations survey conducted by Transport Capital Partners, LLC (TCP). The survey shows the highest share of carriers—83%-- reported average rate increases compared to the first quarter’s survey, in which half reported average rates rising over the prior three months.

According to TCP, a higher share of larger carriers (over $25 million in revenue) reported rate increase up to 5% compared to smaller carriers. But 31% of smaller carriers reported average rate increases over 10% compared to 21% of larger carriers.

“These tie into the upbeat expectations for industry volumes and rates in the coming year by carriers responding in the survey and in conversations with TCP partners,” stated Richard Mikes, TCP partner and survey founder.

“The responses were also notable for the most reporting average rate increases over 15%, the most between 10 and 15% reflecting both breadth and magnitude in a quarter noted for high contract bid activity,” added Mikes.

“This lays the groundwork early for more strength in the last half [of 2011] and likely the reason behind the high rate expectations for the year ahead reported in the same survey,” noted TCP partner Lana Batts.

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