This story appears in the Aug. 29 print edition of Transport Topics.
Truck tonnage in July continued to reflect a struggling freight environment, posting a 0.3% year-over-year gain that was the smallest this year, and declining 2.1% from June, American Trucking Associations reported.
After the fourth sequential decline in the past five months, ATA’s advanced seasonally adjusted for-hire index stood at 134.3, the lowest level since October 2015.
“This prolonged softness is consistent with a supply chain that is clearing out elevated inventories,” ATA Chief Economist Bob Costello said. “Looking ahead, expect a softer and uneven truck freight environment until the inventory correction is complete. With moderate economic growth expected, truck freight will improve the further along the inventory cycle we progress.”
Arun Raha, chief economist at Eaton Corp., was more optimistic. He said freight levels — and tonnage — should improve measurably by the end of the third quarter, in part due to inventory trends.
Raha cited gathering momentum in consumer spending, initial signs of improvement in manufacturing and inventory levels that are finally beginning to drop.
A report from Stephens Inc. analyst Brad Delco highlighted the importance of changing inventory levels relative to sales, which now has shown slight improvement for two straight quarters.
“These early signs of an inventory correction provide a constructive setup for the truckload carriers, particularly ahead of peak season,” Delco said.
His report noted that major retailers’ second-quarter earnings reports showed inventory reductions of more than 2%, year-over-year and sequentially.
Meanwhile, ATA’s index of freight actually hauled, which excludes seasonal adjustments, followed a similar pattern, falling 2.7% in July from June to stand at 138.2. It was up 0.7% year-over-year.
The minuscule July increase was a deterioration from the 2.1% year-over-year gain on that basis in June, reinforcing the desultory pace of tonnage growth over the past 12 months. Tonnage has grown 2% or less on that basis in 10 of those months.
“This [tonnage trend] is what we would expect in this type of environment where economic growth is continuing, but it’s not robust, and the inventory correction is still lingering,” Jon Starks, chief operating officer at consultant FTR, told Transport Topics.
“Over the last several months, a lot of things haven’t really significantly changed, except for some truck capacity being culled from the system,” Starks said. “The market looks to be stabilizing, albeit sluggish, but it’s the first step before we see a rebound.”
Starks added that conditions are similar to those near Memorial Day, when the spot market appeared to be tightening with higher demand, but has since loosened slightly.
The latest Trucking Conditions Index from FTR moved up 3.1 points to 6.0, but is down from 8.1 year-over-year, in a scale which zero denotes neutral conditions and 10 is robust.
For the rest of the year, he believes the market will remain steady with small gains in shipments and tonnage year-over-year.
ATA’s Costello identified one reason that could make tonnage look better later this year.
“Tonnage will grow moderately for the rest of this year as tonnage was fairly flat in the second half of 2015,” he said. “The only way that it will contract is if tonnage contin- ually falls for the rest of the year. Any growth, even small growth, should yield small year-over-year gains.”
Several circumstances are holding back stronger tonnage growth, led by the domestic economy’s sluggishness, Costello said. Factors such as the strong dollar that has challenged U.S. exports play a smaller role.
“The difficult part of isolating any one or two things, like a stronger dollar, is the depth of the tonnage report,” Costello said. “This industry hauls everything from raw materials to finished goods, from domestic consumption to exports to imports.”
“Manufacturing is beginning to move up,” Eaton’s Raha said, citing a 0.5% improvement in industrial production and a steadily favorable Institute for Supply Management survey of purchasing managers, which he views as an indicator of future activity.
The auto and housing markets likely will continue to help trucking, Raha said. He cited a nine-year high in new home sales announced last week.
“It’s just a matter of time until we have to build more,” Raha said, to accommodate younger buyers who haven’t yet entered the housing market. There also should be room to grow in existing home sales, he added.
Raha also believes growth in auto sales will continue, but at a slower pace than 2015.
The broader Cass Freight Index moved in an opposite direction from tonnage in July. Shipments dropped 2.6% year-over-year but remained unchanged sequentially from June. The index, which uses information from bill payments through a St. Louis bank, is primarily based on trucking but includes rail, air and barge freight.