May Truck Tonnage Rises 2.7%

American Trucking Associations’ truck tonnage index rose 2.7% in May, the 18th consecutive year-over-year increase, but the growth rate fell to its slowest pace since February 2010 as U.S. economic growth flagged.

The seasonally adjusted freight index stood at 112.3, the trade group reported on June 27. The softening in demand was shown by a 2.3% month-to-month decline from April to May. The year-over-year growth in May also was slower than in April, when the increase was 4.8%.

“Truck tonnage over the last four months shows that the economy definitely hit a soft patch this spring,” said Bob Costello, ATA’s chief economist. “It is clear why there is some renewed anxiety over the economic recovery.”

Costello said that ATA’s tonnage index declined month-to-month in February, March and May this year as economic reports on gross domestic product, manufacturing and consumer spending illustrated the reduced pace of economic growth and demand for trucking services.

The declines in economic indicators included a 1.9% rise in gross domestic product during the first quarter, sharply slower than 3.1% in the 2010 fourth quarter, the U.S. Commerce Department reported. Manufacturing, as measured by the Institute for Supply Management, has slipped for three months and is expected to slip further in June. To complete the sobering picture, the Conference Board said last week that consumer confidence has dropped for seven straight months.

Costello said in ATA’s statement that he is “cautiously optimistic” about improved economic growth and higher demand for trucking services in the last six months of 2011.

“With oil prices falling and some of the Japan-related auto supply problems ending, I believe this was a soft patch and not a slide back into recession, and we should see better, but not great, economic activity in the months ahead,” he said.

One potential sign of improvement is the expectation that the rate of GDP growth will rise to 2.3% in the second quarter, based on a Bloomberg News survey of economists.

Several other sources that measure trucking activity also signaled continued strength in the industry.

Jefferies & Co. analyst Peter Nesvold said tonnage growth still is expected to grow between 3% and 5% for the full year. However, he told Transport Topics there were “conflicting signals about the strength of the recovery.”

These “conflicting signals” developed, he said, because ATA’s measure of tonnage that isn’t seasonally adjusted was a strong 6.5% higher on a year-to-year basis, while the group’s seasonally adjusted number of 2.7% growth fell below his estimate of tonnage growth for the year.

Over the first five months of 2011, tonnage has risen 5.2%, on average, above the same interval of 2010.

In a June 29 report, UBS analyst Rick Paterson said that 71% of nearly 200 fleets surveyed during the second quarter said business was better than in the same period of 2010.

A survey by consulting firm Transport Capital Partners also showed optimism as 80% of fleets believe demand will be stronger during the balance of the year than it was in the first half.

Deutsche Bank analyst Justin Yagerman reached a similar conclusion.

“We expect trucking demand to strengthen in the second half of 2011 as imports are expected to rise sequentially, and our recent channel checks highlighted a tightening of truck capacity month-to-date in June,” he said in a June 28 report.

Part of his optimism was tied to increased West Coast port activity in June, which typically is a predictor of higher trucking demand in subsequent months, Yagerman wrote in the report.

He also said he saw a positive trend in ATA’s index that is not adjusted for seasonality. On a sequential basis, that index was 2% higher in May than it was in April, standing at 115.9. That rate of sequential increase topped the five-year average of 1.6%, his report said.

More immediately, Longbow Research analyst Douglas Wood-rich said in a June 27 report that the group’s truckload barometer, which measures activity in that sector, has risen for five of the past six weeks. The only decline was in the week ended June 25. Flatbed trucking remains the strongest segment, with a 31% rise in activity this year.

David Schrader, senior vice president for TransCore, which operates a load board, said there are signs of continued stronger demand, as measured by the load-board operator.

Part of the reason demand is growing now, Schrader said, is seasonal produce moves from California, Texas, Arizona and Florida.

TransCore has reported all-time high monthly volume on its North American Freight Index in four of the first five months of 2011.

There is anecdotal evidence that volumes are being helped by brokers who are turning to load boards for higher profit margins than shipments covered by contract rates, TransCore said.