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Second half may be tough for trucking

July 27, 2011
With freight volume scoring its biggest year-over-year gain since January and rates rising for truckload (TL) and practically galloping ahead for less-than-truckload (LTL) motor carriers right now, one might presume this year’s second half will end up the better half of trucking in 2011

With freight volume scoring its biggest year-over-year gain since January and rates rising for truckload (TL) and practically galloping ahead for less-than-truckload (LTL) motor carriers right now, one might presume this year’s second half will end up the better half of trucking in 2011. But there’s a lot more to where trucking may be headed then current data points might indicate, according to an expert analyst who closely tracks both the TL and LTL segments of trucking.

As for tonnage, the good news comes from the American Trucking Assns. (ATA) advance seasonally adjusted (SA) For-Hire Truck Tonnage Index. Compared with June 2010, tonnage jumped 6.8% - for the largest YoY (year-over-year) gain since January.

In May, the tonnage index was 3% above the prior year. The index rose 2.8% in June after decreasing a revised 2.0% in May. However, May’s slip was slightly less than the 2.3% ATA reported back on June 27. The latest gain put the SA index at 115.8 (2000=100) in June - up from the May level of 112.6 and marking it the highest since January 2011.

The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 122.3 in June, which was 5.3% above the previous month, stated ATA.

“Motor carriers told us that freight was strong in June and that played out in the data as well,” ATA chief economist Bob Costello said. He pointed out that tonnage recovered all of the losses from April and May when the index contracted a total of 2.6%.

“After growing 5.5% in the first half of the year from the same period last year, the strength of truck tonnage in the second half will depend greatly on what manufacturing output does,” Costello added. “If manufacturing continues to grow stronger than GDP, I fully expect truck freight to do the same.”

Speaking to Fleet Owner, Peter Nesvold, managing director & transportation equity analyst with Jefferies & Co., stated that looking across the truckload [second quarter] reports so far “volumes have been relatively light—2% up at best—and this may be due to lots of pull-forward of freight ahead of ocean [carriage] rate hikes.” He expects that volume will lead 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.”

Nonetheless, he said TL freight rates are up, albeit only in the range of +2% to +4%, with spot rates trending in the single digits. “Those are low [numbers] for investors,” he observed, “especially as they were looking for up to +8% [rate hikes.] The perception,” he added, “was that a lot more capacity had left the industry.”

Nesvold said that the LTL segment’s recovery took longer to get rolling, but rates have become much stronger over the last several quarters — to now reside in the +8% to +13% range. “The strength of the LTL rates will continue,” he noted, “driven by improving demand trends and more rational pricing environments.”

Commenting in terms of investor interest, Nesvold noted that his firm “cares most about dry van loads and pricing, as well as trends in the short-haul segment, as most of the public TLs are skewed toward these areas.” Given that, he said dry van pricing continues to track at the high-end of expectations (+9.8% YoY in May), while the short-haul segment has remained negative (-3.9% YoY in May). “Meanwhile, dry van loads fell 2.0% YoY in May, although that marked the best YoY reading in nine months,” he added.

As for what is ahead for trucking in the second half of this year, Nesvold told Fleet Owner it is hard to say yet because of a very specific factor at play this year. That is all indications are that the peak back-to-school and Christmas holiday shipping seasons are expected to start later than usual this year and run over a concentrated (shorter) period. Why? According to Nesvold, the reason is simple: Retailers are holding back on stocking inventory until they hear more positive news about the macroeconomic outlook.

“What [retailers] want to know is that the debt-ceiling negotiations have been completed and how they have been resolved” before they determine how much inventory they will be taking on during the peak shipping season.

Regardless, though, of how strong the second half will ultimately be, Nesvold remarked that “volumes may be down a bit, but freight is still flowing and fleets can only delay so long bringing down the age of their equipment.”

Indeed, per one expert, new-truck sales are beginning to be driven up by a combination of greater activity in the nation’s energy sector as well as the ever-aging of many fleet vehicles and rising rates that are buoying, especially “smaller OTR” customers.

“The second quarter marked our first meaningful increase in Class 8 and medium-duty truck sales since Class 8 industry orders began increasing in November 2010,” said W. M. “Rusty” Rush, president & CEO of mega truck dealer Rush Enterprises, Inc. in the company’s 2Q earnings release today. ”Strong Class 8 truck sales activity continues to occur within the energy sector and we are also delivering new trucks to large Class 8 on-highway fleets that are replacing aged vehicles.

“As industry freight rates have increased, we have seen an increase in sales activity to smaller over-the-road truck customers as well,” he continued. “Medium-duty truck sales activity increased significantly despite continued supply issues with Japanese manufacturers… As truck manufacturers continue to deal with component supplier delays, we expect both Class 8 and medium-duty truck sales activity for the third quarter to remain relatively flat compared with the second quarter.”

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