May Truck Tonnage Gains 7.2%

This story appears in the July 5 print edition of Transport Topics.

Tonnage hauled by U.S. trucking companies in May rose 7.2% from the same month of 2009, the sixth consecutive year-over-year increase, American Trucking Associations reported last week.

The gain in May left truck tonnage index at a seasonally adjusted reading of 109.6, ATA said June 25. The index’s base level of 100 represents the amount of freight hauled by ATA members in 2000.

However, the index did slip 0.6% from the April reading, the first sequential decline since February. Year-to-date, tonnage is up 6.2% compared with the same period in 2009, ATA reported.

“Despite the month-to-month drop in May, the trend line is still solid,” said Bob Costello, ATA’s chief economist. “This doesn’t take away from the fact that freight volumes are quite good, especially considering the reduction in truck supply over the last couple of years.”

Costello, in his June 25 trucking economic review, said the total U.S. truck fleet has shrunk about 14% since hitting its peak in 2007. As a result, while tonnage levels are still short of prerecession levels, the latest increases “feel even better to most fleets right now” because the supply of trucks is more closely aligned with demand.

The head of truckload carrier Celadon Group, Indianapolis, noted the same trend.

“It’s not that demand has gone through the roof; it’s that supply is going down substantially,” Stephen Russell, Celadon’s chairman and chief executive officer, told Transport Topics on June 30.

At investor conferences on June 15 in New York, the top financial executives for two carriers spoke of growing demand heading into the second half of the year.

Less-than-truckload hauler Old Dominion Freight Line, Thomasville, N.C., said tonnage levels have not only improved compared with last year, but they also have firmed up sequentially in the first half of the year.

“We’ve seen both sequential and year-over-year improvements in our tonnage,” said J. Wes Frye, Old Dominion’s chief financial officer. “In May, we actually ended up

sequentially better, and year-over-year better, at 12.8%,” he said. Frye, speaking at Bank of America Merrill Lynch’s Global Transportation Conference, added that the “trend has continued into June.”

At the Wells Fargo Securities’ Industrial Conference, the CFO of truckload carrier Werner Enterprises, Omaha, Neb., was similarly upbeat.

“As we measure [the] second quarter [of] 2010 thus far, our pre-book ratio of loads to trucks in our one-way truckload division are meaningfully better than second quarter of ’09,” said Werner CFO John Steele. He said that “May volumes per day were better sequentially than April.”

Meanwhile, recent reports continued to offer mixed news about the U.S. economy.

The Conference Board reported that consumer confidence dropped to 52.9 in June from 62.7 in May, the lowest level since March.

That report was issued a day after the Commerce Department said consumer spending rose 0.2% in May. And the previous week, the Reuters/University of Michigan consumer sentiment index rose to a two-year high in May.

Consumer spending accounts for about 70% of the U.S. economy.

Increases in spending could augur more truck trips to refill drained inventories and deliver finished goods.

After ATA released the May tonnage report, two stock analysts offered differing views of trucking’s near-term prospects.

John Larkin, who covers transportation stocks for Stifel, Nicolaus & Co., Baltimore, predicted that the tonnage recovery is running out of steam.

“The rebound in freight demand may not be sustainable,” Larkin wrote in a June 28 note. Prospects for improved personal consumption are not particularly bright for the second half of the year, he said, and industrial production was not likely to pick up the slack and generate freight if consumer spending falters.

But another analyst, citing bustling import traffic at West Coast ports, foresees plenty of near-term demand.

“Truck tonnage is poised to see strength through at least October, given strong shipping line bookings,” said Justin Yagerman, who follows transportation stocks for Deutsche Bank.

ATA’s Costello said he believed the economic recovery “is sustainable, and so are the gains in truck freight volumes.”

Costello also noted that “there is no way that freight can increase every month, and we should expect periodic decreases.”