Better times ahead for national trucking industry?

A national trucking economist believes the worst might be in the rear-view mirror of the trucking industry.

The American Trucking Associations’ advance seasonally adjusted For-Hire Truck Tonnage Index was up 3.2% in May, the first increase since February. Fort Smith-based ABF Freight System saw its first-quarter tonnage drop 15.7% compared to the first quarter of 2008. Its second-quarter tonnage through mid-May is down 17%, according to company spokesman David Humphrey.

Trucking, according to ATA, serves as a barometer of the U.S. economy, representing nearly 69% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 10.2 billion tons of freight in 2008.



However, May’s increase wasn’t large enough to offset the March through April cumulative reduction of 6.7%, noted the ATA statement. Compared with May 2008, tonnage contracted 11%, which was the best year-over-year result in three months. Despite the improvement from April’s 13.2% plunge, May’s decrease is still historically large.

“I am hopeful that the worst is behind us, but I just don’t see anything on the economic horizon that suggests freight transportation is ready to explode,” ATA Chief Economist Bob Costello said in the statement. “The consumer is still facing too many headwinds, including employment losses, tight credit, rising fuel prices, and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term.”
Costello also noted that he doesn’t expect tonnage to deteriorate much further and that any growth in tonnage over the next few months is likely to be modest.

ATA Chief Economist Bob Costello said the month-to-month improvement was encouraging, but cautioned that tonnage is unlikely to surge anytime soon.

Donald Broughton, a trucking sector analyst with Avondale Partners, was cited in a recent Associated Press report as saying more than 3,000 trucking companies went out of business in 2008, which removed about seven of 100 trucks off the roads. He said about 480 trucking companies went out of business during the first quarter of 2009, which is less than 1% of the industry’s freight-hauling capacity and leaves too much capacity competing for the lackluster demand.

U.S. Truck Tonnage Off 11.1 Percent in December

Implications: U.S. trucking companies are facing the roughest operating environment perhaps since deregulation in 1980. The American Trucking Associations' seasonally adjusted truck tonnage index for December was off 11.1 percent, its largest month-to-month reduction since April 1994. That drop occurred when the Teamsters struck a handful of LTL companies. December's drop was the third-largest single-month drop since ATA began collecting this data in 1973.

Compared with December 2007, the index declined 14.1 percent. That's the biggest year-over-year decrease since February 1996. During the fourth quarter of 2008, tonnage was off 6 percent compared with the fourth quarter of 2007.

Analysis: It's scary. Freight demand fell off in December like a skier going down a mountain. The 11.1 percent decline in December is the largest single-month drop since April 1994, according to the American Trucking Associations.

It was also the third-largest single-month drop since the ATA began collecting this data in 1973.

By my count, this freight recession/depression began in August 2006. That would make 30 months by the end of January, one of the longest and most stubborn declines in trucking industry history.

No wonder fleets are shedding capacity. When one hears top-flight carriers such as Heartland Express, perennially one of the most profitable truckload carriers in the country year in and year out, thinking about downsizing that automatically is cause for concern.

Of course, Heartland is not along. Already, the likes of J.B. Hunt, Werner Enterprises, Knight Transportation and Swift Transportation have shed 10 percent or more of their over-the-road capacity since January o of 2007.

And 2009 doesn't appear to be starting any better than 2008 ended.

According to a press release from Heartland Express: "The quarter is off to a dismal start."

Truckers are getting a slight break in fuel, but that too is a double-edged sword. Because of the lag in fuel surcharges, many carriers are facing steep declines in revenue as their fuel surcharges are being cut in half or more.

While truckers have more ability now to shed capacity and cut costs than they ever have had in the past, there is not much carriers can do to restore profitability until the overall U.S. economy starts to improve.

As ATA Chief Economist Bob Costello, a steady hand, put it: "Motor carrier freight is a reflection of the tangible-goods economy, and December's numbers leave no doubt that the United States is in the worse recession in decades. It is likely truck tonnage will not improve much before the third quarter of this year."

Overall Gross Domestic Product is expected to contract in both the first and second quarters of this year and grow only slightly in the third and fourth quarters, economists predict.

That begs the question: how many marginal carriers will be able to handle these headwinds before declaring bankruptcy this year?