Truck Tonnage Rises 5.9%

This story appears in the July 29 print edition of Transport Topics.

Truck tonnage jumped 5.9% last month from a year ago as heavy freight for housing, automotive and other customers continued to push American Trucking Associations’ cargo index higher.

ATA on July 23 said its advanced seasonally adjusted index climbed to a record 125.9 in June, slightly above the May reading of 125.8, which was revised down from its originally reported level of 126.

With the latest increase, the second largest after May’s 6.5% year-over-year improvement, tonnage has risen for six consecutive months. Tonnage for the first half of 2013 was 4.7% higher than last year.

“I continue to be surprised at the strength in tonnage,” said Bob Costello, chief economist for ATA, who told Transport Topics he is raising his full-year tonnage growth estimate to more than 3.5%. Earlier this year, Costello predicted tonnage growth of as little as 2% for 2013.

“The fact that tonnage didn’t fall back after the [sequential] 2.1% surge in May is quite remarkable,” Costello said, citing the positive effects of durable goods output that rose 0.5% in June and strength in the automotive sector.

“Robust auto sales also helped push retail sales higher, helping tonnage in June.” he said. Car and light-truck sales hit an annualized rate of 15.9 million vehicles last month that was the highest since September 2007.

Building materials and other heavy freight are moving to support the housing industry, where new starts rose 10% in June over the year-earlier period.

“Energy production continues to help,” he said. “It’s very heavy freight.”

Improvement also was evident in the non-seasonally adjusted tonnage report that measures actual freight shipments.

That index also stood at 125.9 in June, which was 5% below May’s near-record total and 2.9% above last year.

“Heavy freight, like autos and energy production, is growing faster than lighter freight,” Costello noted.

Meanwhile, multiple economic reports underscored the general sluggishness of the nation’s economy.

The latest indicator was the Federal Reserve’s Beige Book report, which found “overall economic activity continued to increase at a modest to moderate pace,” based on reports between late May and early July.

Another sign was retail sales, which were unchanged in June, other than increased car and light-truck sales.

From a manufacturing standpoint, the Institute of Supply Management’s purchasing managers’ index rose to 50.9, pushing that gauge of economic activity back above the expansion level of 50.

Ken Simonson, chief economist at the Associated General Contractors of America, told TT that “the modest increase in June, following a robust rise in May, is consistent with other reports on the economy’s frail and fragmentary expansion.”

Second-quarter earnings reports from publicly traded fleets that specialize in dry van freight shipments underscored the lackluster freight environment.

Werner Enterprises Inc.’s July 23 earnings announcement noted that freight demand strengthened last month but remained at levels “comparable” with June 2012.

Marten Transport CEO Randy Marten cited “slow economic growth and a challenging rate environment,” while Heartland Express reported second-quarter freight revenue was down 7%, excluding fuel surcharge.

Other gauges of freight activity last month also were not as upbeat as ATA’s index.

For example, freight made available by shippers and brokers in spot-market loads rose 2.2% over May levels, according to the DAT North American Freight Index.

Costello’s projection of higher growth in tonnage was accompanied by a cautionary comment that he still expects the tonnage levels will weaken at some point later in the year.

“I’m expecting over 3.5% tonnage growth this year,” he told TT. “To put that in perspective, on average, tonnage will need to fall 1% each month for the rest of the year for growth to be 3.5% at the end of the year.”

Justin Yagerman, a Deutsche Bank analyst, said he was “encouraged by the resiliency in truck tonnage trends, given various headwinds [lackluster economic growth, tax increases and the impact of the sequestration].”

He added that tonnage rose in line with seasonal trends over the past decade.

However, he also noted that anecdotal van carrier comments indicated limited optimism about the rest of the quarter and that groups such as the National Retail Federation are projecting an 8% drop in back-to-school sales that are a mainstay for late summer freight.

Werner’s report suggested that recent freight trends persist this month, based on year-to-year comparisons.

“Freight demand in July 2013 is comparable to the same period in July 2012, with typical seasonal demand trends in the first three weeks of July,” Werner’s report said.