May Truck Tonnage Sets Record

This story appears in the June 24 print edition of Transport Topics.

U.S. truck tonnage set an all-time record last month as it increased 6.7% above last May’s level, driven by improved housing, energy and automotive demand, American Trucking Associations reported last week.

ATA’s advanced seasonally adjusted index reached 126, topping the record level of 124.3 set in December 2011. The year-over-year percentage rise was the highest since December 2011. On a sequential basis, the index was 2.3% higher in May than April.

“Tonnage skyrocketed in May,” ATA Chief Economist Bob Costello said. “The 6.8% surge in new housing starts during May obviously pushed tonnage up as home construction generates a significant amount of truck tonnage.”

Other factors are helping to boost tonnage, said James Meil, chief economist for Cleveland-based Eaton Corp., who described ATA’s report as “a little bit of an eye-opener.”

“The auto sector is not superstrong,” Meil said, “but it is strong enough. Automotive is a prime generator of motor freight, both for parts and finished vehicles.”

Meil noted that second-quarter car and light-truck production will be 4% greater than the 2012 period and that a 5% production increase year-over-year is expected next quarter.

Meil also said the energy sector and tonnage are benefiting from factors other than accelerated U.S. crude oil exploration. Natural gas demand is rising because more utilities are burning lower-priced natural gas instead of coal.

“Housing is strong,” Gary Salisbury, CEO of Fikes Truck Line, a flatbed and refrigerated carrier based in Hope, Ark., told Transport Topics. “Demand is a lot higher than last year.”

Fikes is benefiting, he said, as some flatbed capacity is diverted to support energy exploration. That strengthens demand for available trucks to haul building products for residential and commercial construction in fast-growing markets such as Dallas.

Shipments also are being stimulated by reconstruction in areas damaged by tornadoes and other storms, he added.

Year-to-date, ATA’s tonnage index is up 4.5%.

While expressing “surprise” at tonnage growth in 2013, Costello last week expressed concern that a recent increase in inventory relative to retail sales could mean tonnage growth will ease later this year as replenishment slows.

The increase in tonnage has put even more pressure on fleets to keep drivers, he said, as shippers increasingly are saying, “We need a truck, and we need it tomorrow.”

ATA’s not seasonally adjusted index that measures actual shipments hauled stood at 132.7 in May, which also was a record. That reading was 5.4% better than April and 6.6% above May 2012. The prior top mark was 126.7, in August 2012.

“We heard from many motor carriers that said May was a good month,” said Costello, who cited favorable economic statistics such as a 0.2% rise in factory output in May and 0.6% higher retail sales, both on a sequential basis.

The tonnage increase is “not only a good indicator for our industry but for the overall economy as well,” he said.

Housing growth should continue because building permits for single-family homes hit a five-year high last month, when the annualized rate of housing starts reached 914,000. Housing starts remain far below the peak pace of 2.1 million in 2005.

“A lot of us are expecting that we need 1.6 million to 1.9 million housing starts to keep up with population growth,” Brad O’Connor, chief accounting officer at Red Bank, N.J.-based builder Hovnanian Enterprises, said in a June 13 presentation. “Housing creation shows that we should still have a fair amount of pent-up demand and an ongoing recovery to the housing market that we’re just in the beginning of that recovery.”

In addition, an index compiled by the National Association of Home Builders and Wells Fargo Bank rose to its highest level in six years, climbing to 52 from 44, the home builders’ group said.

Another factor in the tonnage growth could be a carryover from April, when it rose 4.3% year-over-year, in part because of shipments that were pushed back by severe weather in March and parts of April, said a report from analyst Justin Yagerman at Deutsche Bank.

The growth in tonnage from heavier freight hasn’t been reflected in shipment growth. ATA’s latest statistics show a 0.5% decline overall in shipments. Growth was strongest in the tank truck segment that carries sand, water and other materials to support energy exploration.

Jefferies & Co. analyst Peter Nesvold said in a June 19 report that the strong tonnage numbers are carrying over this month, citing individual carrier comments and diesel purchases that rose 11% above June 2012 in two recent weeks.

Load board demand, as measured by DAT’s North American Freight Index, rose 5.6% from April to May. That was in line with seasonal trends, which have shown April to May increases in eight of the past 10 years.