Tonnage Growth Slowing

This story appears in the July 30 print edition of Transport Topics.

The rate of growth in freight in the United States slowed again in June, mirroring the weakening recovery in the overall economy, according to a key market barometer.

American Trucking Associations reported last week that its closely watched tonnage index rose 3.2% in June from the levels of a year earlier.

While ATA’s advanced seasonally adjusted index rose to 119, the 31st consecutive year-to-year improvement, the index actually declined 0.8% in the second quarter, compared with the first quarter. That marks the first decrease in a year and is a clear sign of the overall slowing.

In addition, the year-over-year tonnage growth in June trailed the 4.1% rise in May and the 3.5% growth in April. The June results also trailed year-to-date tonnage growth of 3.7%.

“June’s increase was a pleasant surprise, but the lower year-over-year gain fits with an economy that has slowed,” Bob Costello, ATA’s chief economist, said in a statement. “Manufacturing output was strong in June, which helped tonnage levels.”

ATA also said the tonnage index rose 1.2% in June over May, the largest gain so far this year on a month-to-month basis. The gain may have been boosted by a 0.4%. rise in industrial production during the month, according to a Federal Reserve report.

The broad theme of slowing was evident in the latest economic reports, in carrier commentary and in Costello’s tonnage outlook.

The ATA official said he now believes tonnage growth for all of 2012 will be no more than 3.5%, less than his earlier estimate of 3.9%. He said he still believes tonnage will rise at least 3%.

Kevin Knight, CEO of truckload carrier Knight Transportation, gave a blunter assessment during a July 25 conference call.

“Let’s be realistic,” said Knight. “The economy still sucks, and it [does not] seem like anybody is doing much to really improve it. When you think of where we were in 2010 and then 2011 and then 2012, I would definitely say that economically we’re still way behind. We continue to be in a tepid environment.”

“The caution in the second half is just the uncertainty with the economy,” he said. “You see that in our competitors, in the integrators; you see that on the news.”

Uncertainty was a theme throughout second-quarter earnings reports, led by largest transport company UPS Inc., which cut its earnings forecast because of economic and political unknowns (see story, p. 5).

Benjamin Hartford, an analyst for Robert W. Baird & Co., said in a report last week that all U.S. transport companies have reported moderating economic trends in their second-quarter earnings announcements.

Freight industry trends are expected to slow further in the second half with the economy, Hartford said in his report.

The change in direction also is evident in ATA’s non-seasonally adjusted index, a gauge of how much freight actually was hauled last month by for-hire carriers.

That index dropped to 123 in June, or 0.9% below the result for May. Until June, this index had been on an upward trajectory, rising 6.5% from April to May and 2.8% from March to April.

The latest round of economic reports underscored the slowing trend, though there were still some bright spots.

For example, the Commerce Department’s June report on durable goods — those meant to last at least three years — rose 1.6%, but all of the gain was due to increased aircraft and military equipment.

Excluding the aircraft orders, the gauge fell 1.1%, the most in five months.

In addition, retail sales slipped for a third consecutive month during June.

Costello said businesses that are sitting on cash could stimulate both the broad economy and tonnage by hiring more workers or making capital investments.

The reluctance to do either, he said, was driven by persistent financial difficulties in Europe and the prospect of U.S. tax increases and budget cuts.

Business investment, “which was a pillar of strength, has been chopped a bit,” Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York, told Bloomberg News on July 26.

Federal Reserve Chairman Ben Bernanke earlier this month also raised the issue of reduced business spending during testimony before Congress, while also promising more effort to spark investment if there are more signs of slowing.

Another report from Commerce last week underlined the drop in investment, noting a 4.9% decline in demand for computers and a 1.1% slip in machinery orders.

Large U.S. companies other than UPS also are lowering their expectations.

One example is Xerox, whose CEO, Ursula Burns, said, “The economic uncertainty has created more pressure, especially in Europe and especially in our technology business,” when the company said it’s cutting the 2012 forecast.