Economic indicators point to U.S. on faster growth track for 2014

Reading the economic tea leaves: Trucking good to go

Jan. 24, 2014
Capacity is tightening-- and that spells rate relief ahead

It’s becoming apparent from analysis of data from December as well as into January that U.S. business and the trucking industry that supports it may well enjoy a strengthening uptick in economic activity as 2014 rolls forward.

For starters, forecasting firm FTR has reported that its latest Trucking Conditions Index (TCI) reading of 7.01 in November--  albeit down 20% from the month before— “reflects a positive environment for truckers.”

As FTR sees it, the “regulatory drag” from Hours of Service (HOS) reform is reducing capacity. Yet the firm contends that “upside economics have yet to be translated into real market tightness mitigating the rise in the index.”

What’s more, FTR said it “assumes that the Federal Motor Carrier Safety Administration (FMCSA) will delay “most of the next round” of expected regulatory changes.

“While we did see a slight dip in the TCI Index, the absolute level is still suggesting a relatively healthy trucking environment,” commented Jonathan Starks, FTR’s director of transportation analysis.

“We have also seen several positive indicators being reported in the industry during December and January that are making us slightly more bullish about the direction in the market as we enter 2014,” he continued.

Starks advised that some of the latest data “suggests a significantly tightening capacity situation.”

He remarked that although some of the tightening is due to the severe winter weather that has hit the U.S., it’s also the result of recovery in the manufacturing segment and the impact of the HOS changes. These are “finally impacting the truck market as we have been predicting for several months.

“If this tightening continues it would be a significant boon for truckers,” Starks pointed out, “as they will finally have the ability to raise shipping rates.”
Backing up FTR’s latest take on trucking is the firm’s newest Shippers Conditions Index (SCI). That puts conditions for November at -6.0— which the firm advised “continued to reflect a negative environment for shippers despite improving for the third straight month after hitting a low point in August.”

FTR’s SCI is a compilation of factors affecting shippers.  Any reading below zero indicates a less-than-ideal environment for shippers. Readings below ten indicate conditions for shippers are approaching critical levels, based on available capacity and expected rates.

Per FTR, the SCI will continue to moderate “mildly” due to regulatory pressures being “temporarily reduced because of weak freight multipliers due to a shift in the economic mix from industry to service.”

On the other hand, the firm has also reported that there’s “some evidence from the field of continued tightening capacity,” and that poses “some serious downside risks” to shippers. 

“We are currently seeing things tighten up in the market, and it is not yet reflected in the November numbers,” pointed out FTR president Eric Starks.

“I would expect to see the SCI index weaken further as we move through the first quarter,” he continued. “This is not a good sign for shippers.”

He explained that the key concern for shipper is tightening trucking capacity. “In early December, we saw a spike in capacity utilization and it was exacerbated by the recent [winter] storms.

“It will be interesting to see if the tightness continues as we start to approach February,” starks continued “If it does, then we will likely see a surge in shipping rates for all of 2014, as shippers typically put out bids and lock-in contract rates in the first quarter for the balance of the year.”

Indicative as well of a strengthening economy are the latest figures on new-truck orders released by ACT Research Co. (ACT).

Per ACT, December was the “second biggest Class 8 order month since March 2006,” with orders up roughly 50% month over month and year over year.

On the other hand, medium-duty net orders for December dropped month over month. Yet year-over-year, these orders were “mixed.”

The firm pointed out that Class 6-7 orders climbed 20% while Class 5 orders fell 16% “against tough comparisons.”

Back up in Class 8, net orders increased 17% from 2012 while Class 5-7 orders gained 10%.

“The U.S. and Canada did the ‘heavy lifting’ for Class 8 orders in December, while Mexico and non-NAFTA orders moved sideways at low levels,” advised Kenny Vieth, ACT’s president & senior analyst.

“Strengthening domestic demand had been supported in the second half of the year by improving economic activity that has translated into improved profits for truckers,” he continued.

“The softness in December’s Classes 5-7 orders is viewed as a temporary pause following two very strong medium-duty order months<” Vieth added.

What’s more, ACT has also reported that in December, the truck-trailer industry gained 14% month over month in net orders. That’s because six of the ten trailer categories posted positive results.

For 2013, a total of 231,700 orders were booked, down just under 2% from results the year before, the firm advised.

And 2013 marked the third consecutive year of annual orders greater than 230,000.

“All trailer categories had single digit cancellation rates, which is a positive for the industry,” said Frank Maly, ACT’s director of CV Transportation Analysis & Research at ACT.

“In addition to indicating that existing fleet commitments are solid, low cancellations also simplify material flow and order planning by the original equipment manufacturers,” he noted.

Further, as regards the ongoing economic recovery, The Conference Board yesterday reported that its Leading Economic Index (LEI) for the U.S. went up 0.1% in December to 99.4-- following a 1.0% hike in November and a 0.1% increase in October.

“Despite month-to-month volatility in the final quarter of 2013, the LEI continues to point to gradually strengthening economic conditions through early 2014,” remarked Ataman Ozyildirim, economist at The Conference Board.

“The LEI was lifted by its financial components in December, but consumer expectations for business conditions and residential construction continue to pose risks,” he advised.

“This latest report suggests steady growth this spring, but some uncertainties remain,” pointed out Ken Goldstein, economist at The Conference Board. “

“Business caution and concern about unresolved federal budget battles persist,” he added. “But the better-than-expected holiday season might point to sustained stronger demand and could put the U.S on a faster growth track for 2014.”

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