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Gloom continues to shroud freight outlook

Oct. 24, 2012
Despite declining diesel prices and an uptick in tonnage volumes last month, the portents for the freight market remain gloomy at best – a reflection in part of what’s being dubbed a “crisis of confidence” within the global business community where the world’s economic health is concerned.
Despite declining diesel prices and an uptick in tonnage volumes last month, the portents for the freight market remain gloomy at best – a reflection in part of what’s being dubbed a “crisis of confidence” within the global business community where the world’s economic health is concerned.

Peter Nesvold (at right), an equities analyst and transportation expert with Wall Street firm Jeffries & Co., provided a rather stark picture regarding truck freight in his latest research brief, noting that truck tonnage decelerated this month after recording 2.4% year-over-year growth in September and 3.1% year-over-year growth back in August.

“Our channel checks suggest that loads, rather than tonnage, are fading again in October after showing signs of life in September,” he said. “Similarly, weekly diesel consumption indicates that overall freight flows and industrial production slowed in the first two weeks of October.”

Nesvold pointed out that the most recent data on weekly diesel consumption - the week of October 12 - shows that demand is down 7.3% year-over-year, which follows a 6% year-over-year drop recording during the week of October 5 and is significantly larger than the 4.5% and 5.3% falloff in year-over-year diesel demand tracked on a three-week and sic-week moving average basis, respectively.

“Weekly diesel consumption, which is highly correlated with overall freight flows and industrial production, is one of the key freight indicators that we track,” Nesvold explained. “Thus this latest reading is consistent with our channel checks that suggest the late-September momentum in freight demand stalled in early October.”

There is, however, one good piece of news in Nesvold’s analysis, and it’s important: The current tonnage trends closely resemble a "typical" truck cycle.

“We compared this current tonnage cycle to our truck composite model, which aggregates truck tonnage data over the past 40 years, and we found that this tonnage cycle has been ‘unremarkable’ in a historical context,” he emphasized. “Based on how devastating the ‘Great Recession’ was, we expected to see huge swings in truck tonnage relative to the ‘typical’ tonnage cycle. But what we found, however, is that this tonnage cycle has been in line with historical trends.”

Still, that’s small comfort when Nesvold’s forecast is for a continued falloff in freight volumes. “We expect tonnage growth to decelerate further in the coming months,” he said. “Our channel checks generally suggest that loads – which improved modestly in the back half of September with a better-than-seasonal bounce – are off to a slow start in October and trail last year’s levels.”

That “slowness” is reflected in part by a pullback in activity by the global business community at large.  

The latest Grant Thornton International Business Report, compiled by research firm Grant Thorton LLP, discerned that businesses are facing “a crisis of confidence” in the country’s economy for 2013, with optimism falling to 19% in the third quarter compared to 50% the second quarter of this year.

Grant Thorton’s survey – which is based interviews with 3,500 private and public companies around the world – noted that business optimism in some of the world’s largest economic powers fell precipitously from quarter to quarter. For example, in China, confidence decreased from 33% to 11% and in Germany, optimism dropped from 40% in the second quarter to 28% in the third quarter.

“Businesses in the U.S. are experiencing uncertainty about how the economy will perform in the next 12 months,” noted Stephen Chipman (at right), CEO of Grant Thornton. “Much of this is likely due to the overall uncertainty in the country right now – from the outcome of the presidential election to the fiscal cliff.”

Even so, U.S. business executives are showing some signs of optimism about their revenues and profitability, he stressed.

In the next 12 months, 58% of business leaders in the U.S. expect revenue to increase, according to the survey’s findings, with 71% of respondents from the western part of the country expecting revenue to increase, followed by 63% of Northeast business owners, 58% of those in the Midwest, 53% of Mid-Atlantic/Southeast respondents, and 49% of those in the Central part of the U.S.

In the area of employment – what Chipman dubbed a “top-of-mind” topic for many Americans – more than one-third of businesses (34%) reported that employment would increase during the next year. Though some businesses are planning to hire, others are playing it cautiously, with 57% of respondents saying they expect employment to remain the same, he said.

Nearly half of U.S. respondents (49%) to the firm’s poll believe there will be no change in accessibility to financing for their business, something that is further evident in the different regions: 64% of those in Midwest, 57% in Mid-Atlantic/Southeast, 55% in the Northeast, 53% in the West, and 44% in the Central states. Similarly, 90% of those surveyed said they believe their lender is supportive toward their business.

In fact, businesses surveyed believe the biggest constraint to growing their business is regulation and red tape, with 32% identifying it as such, versus concerns about access to credit.

“Though optimism in the U.S. declined, there are some bright spots for U.S. businesses,” Chipman reiterated. “While many businesses are holding steady, the next few months will be a good indicator of where we stand on the path to economic recovery.”

Let’s hope those indicators turn positive, to say the very least. 

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