August Truck Tonnage Rises 3.2%

This story appears in the Oct. 1 print edition of Transport Topics.

U.S. truck tonnage rose a modest 3.2% in August from a year earlier, the second-slowest gain of the year, as a weakening economy dragged down freight activity, American Trucking Associations reported last week.

The seasonally adjusted index stood at 118.3 in August, which was the 33rd consecutive year-over-year monthly increase. On a sequential basis, the results declined 0.9% in August from July.

“Truck tonnage is being weighed down by a flattening in manufacturing output and an unintentional increase in inventories throughout the supply chain,” ATA Chief Economist Bob Costello said on Sept. 25.

Two key signs illustrate trucking’s struggles: One was the warnings last month by FedEx Corp. and three other firms on the Transport Topics Top 100 for-hire list that quarterly profits would lag Wall Street estimates (see story, p. 6).

The other was the Commerce Department’s Sept. 27 report that gross domestic product growth grew at only a 1.3% annual pace in the second quarter.

Costello also dampened expectations of a fast freight pickup.

“Expect tough year-over-year comparisons to continue through the rest of the year, as tonnage grew nicely during the last five months of 2011,” Costello said.

Through August, tonnage is up 3.7% for 2012, suggesting a growth rate below 2.5% for the last five months of the year.

Actual tonnage hauled, measured by a non-seasonally adjusted index, told a similar story.

That index increased 5.7% to 126.8 in August from July, but the rise was less than the typical 8.2% month-to-month increase that occurs from July to August, ATA said. The non-seasonally adjusted freight volume was 2.6% higher in August than the same month in 2011.

While recent tonnage trends were lackadaisical, recent reports about consumer behavior and the housing market showed some strength.

The index of consumer confidence compiled by the Conference Board index rose 9 percentage points in August to 70.3, the group reported on Sept. 25.

“This is an encouraging sign,” said Paul Ashworth, chief U.S. economist for Capital Economics in Toronto told Bloomberg News. “Most of the gain seems to be driven by a rebound in [stock] prices over the last month or so. Taking it at face value, it’s obviously a positive for spending, which has been only so-so recently.”

The benchmark Standard & Poor’s 500 Index climbed about 5% from Aug. 1 through Sept. 26.

Costello said the revived housing market played a role in boosting tonnage.

He told Transport Topics that higher demand for heavy freight such as flatbed shipments of housing-related goods, as well as water and chemical shipments to support energy exploration, have been important factors in recent index gains.

Because the ATA index is based on tonnage, rather than loads, heavier freight plays a disproportionate role in that closely watched monthly report.

Among the strong housing indicators were a Sept. 26 S&P/Case-Shiller report that home prices rose 5.9% through July, new home sales that remained near a two-year high in August and a Census Bureau report showing that new housing starts were 29% above last August, bringing activity to a four-year high.

That market has been so strong that builders are reporting a shortage of housing construction workers in some areas, said Kenneth Simonson, chief economist at the Associated General Contractors trade group, citing press reports in Texas newspapers.

A report from Deutsche Bank analyst Justin Yagerman illustrated the positive effect on trucking as housing improves. He said building one house generates 10 truckloads of freight.

Five trucking analysts who issued reports last week agreed with ATA that August was sluggish. However, their predictions of future market trends weren’t consistent.

Thom Albrecht of BB&T Capital said truckload fleets will be a “bit busier” for the next four to six weeks because of improved retail sales and housing.

“There is no indication that the economy is “cratering,” said a Sept. 24 report from Stifel, Nicolaus & Co. analyst John Larkin, who expects modest freight volume improvements.

Some analysts described a freight market that was moving in both directions at once.

“Contacts note that freight demand September-to-date has been below expectations, though spot activity has firmed in mid-September and contacts expect a seasonal build through September and into October,” Robert W. Baird & Co. analyst Benjamin Hartford wrote.

“Conditions have decelerated further over the past six weeks,” said a report from Jefferies & Co. analyst Peter Nesvold, citing an 8.6% drop in recent average diesel fuel consumption on a year-over-year basis.

Nesvold also said some carriers are reporting that September freight volume levels are stronger because of seasonality after weakness that extended for five months between April and August.

Deutsche Bank’s Yagerman was more upbeat: “While freight demand has generally been soft, quarter-to-date, we see some positive signs for future freight demand given improving consumer confidence, encouraging housing trends, and relatively modest inventories,” he wrote.