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Freight now moving “sideways” for trucking

April 16, 2012

Analysis of freight activity during the first quarter this year shows that while tonnage is definitely up, the number of loads in transit remains largely flat – an indication that cargo volumes should only grow at a modest pace even though weight per shipment is increasing.

“Tonnage growth continues to exceed the growth in loads, partly as natural gas rigs – which represent ‘heavier’ freight are being repositioned,” noted Peter Nesvold, transportation and equities analyst for Wall Street investment firm Jefferies & Co., in a recent market brief. “This is consistent with our view that U.S. truck freight demand is generally moving sideways right now, but not declining.”

Jeffries’ data indicated load volumes in February grew 1.5% year-over-year (yoy) verus 1.0% yoy in January, and while volumes firmed in March, they are currently flat compared to the same month in 2011 – meaning that load growth overall for the first quarter this year is “tepid” to Nevold’s eyes.

Still, trucking companies are still expected to do well financially, he stressed, despite the lower level of activity. “Revenue per mile, net of fuel, was up 3.4% yoy in February, decelerating from January's 5.6% yoy gain, Nesvold said. “We initially believe the industry can hold low-single-digit price increases in 2012.”

Average miles per TL truck in February inched up 0.4% from a year earlier, following a 2.4% yoy drop in January. Furthermore, fleet utilization has increased yoy in two of the last three months, Nesvold pointed out. “Capacity appears to be better balanced this year than last year, partly due to fewer weather disruptions, which will likely drive some productivity improvements, in our view,” he explained.

Kenny Vieth, president & senior analyst with ACT Research, told Fleet Owner that tight capacity is key to trucking’s ability to generate better margins this year and next. “Capacity is tight and shippers are seeing it tighten further into 2013, allowing for truckers to pass on cost and expand margins this year,” he explained.

Vieth added that it’s highly unlikely that the freight markets “will go crazy” in his words this year in terms of more volumes. Rather, it will be a “steady as she goes” freight environment, he said.

That view is being born out in some of the first quarter TL earnings reports. J.B. Hunt Transport Services, for one, noted that its operating revenues were up 17% to $1.17 billion in the first quarter this year versus $1 billion revenue during the same period last year, with net earnings reaching $67.7 million in the first quarter of 2012 versus $50 million in the first quarter of 2011.

The company pointed out that all four segments of its business witnessed strong demand, with load growth of 16% in intermodal and 14% in Integrated Capacity Solutions (ICS) divisions helping drive a 20% and 30% increase in segment revenue, respectively.

J.B. Hunt added that its Dedicated Contract Services (DCS) and truckload segments also saw increased operating revenue of 7% and 8%, respectively.

“Changes in packaging, fuel costs, inventory levels, replenishment and end consumer point of purchase behaviors, among others, have had an effect on how our customers manage logistics,” noted John Roberts, J.B. Hunt’s president and CEO.

“Thus we continue to operate under our long stated strategy of directing investments towards solutions that customers need and are willing to pay for with reasonable rates and structured contract terms,” he added. “Our results of the first quarter provide ongoing confirmation for this disciplined and balanced strategy.”

Several recent surveys also growth is expected to continue for U.S. economy overall, just not at a dramatic pace.

For the second straight quarter, corporate directors have higher expectations for economic performance, according to the National Association of Corporate Directors' (NACD) Board Confidence Index (BCI) poll for the first quarter this year.

This marks the first time since the second quarter of last year that directors participating in the quarterly survey have expressed moderate confidence in the economy, with overall business confidence rising to a solid 61, said Ken Daly, president and CEO of NACD.

The view of general economic conditions compared to one year ago leaped nearly 21%, up 11 points, to an encouraging 64, and in a telling indication for the future, directors' expectations for the next year rose 8%, up 5 points, to 64 during the first quarter this year, noted Daly – adding that this survey of corporate directors conducted by NACD is done in collaboration with compensation consultancy Pearl Meyer & Partners.

According to the survey methodology, Daly added, scores from 21-40 represent a moderately negative outlook, 41-60 represents a neutral view, and 61-80 represents a moderately positive outlook.

Also, nearly half of the respondents to NACD’s survey indicated that their company's hiring remained the same in the first quarter of 2012 versus the fourth quarter of 2011, with nearly 60% indicating that their companies plan to retain their workforce over the coming quarter while more than 25% said their companies plan to expand their workforce.  

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