Freight Growth Rates ‘Can’t Persist,’ Economist Warns

The freight surge of 2010 is nearing its end, an economic forecaster says.

"These growth rates you've seen in the last four months are probably the largest you're going to see in the next couple of years," says Donald Ratajczak, an economic consultant and regents professor emeritus at Georgia State University.

Strong freight volumes that lifted trucking sales in recent months are likely to decline in the third quarter, as shippers complete inventory restocking, Ratajczak told trucking executives at the recent SMC3 summer conference.

The massive restocking that began in the first quarter continued in the second quarter, but it is waning and will continue to do so in the coming months, he said.

"The growth rates aren't going to persist, they can't persist," if consumer spending remains flat as warehouses and stores are filled.

The comments come amid other warnings that the growth in freight volume this year is due to slow down as restocking efforts outpace consumer demand.

The latest Global Port Tracker report by the National Retail Federation and Hackett Associates released Thursday said container volume growth rates would slow to the single digits this fall after expanding 15 percent year-over-year in the first half of the year.

With consumer confidence low and unemployment remaining at high levels, "sales will be slower in July and August," Hackett Associates founder Ben Hackett said. "Inventories will rise, resulting in some sharp seasonal volume reductions."

Ratajczak estimates $50 billion in inventory was replaced in the second quarter, "the highest amount of restocking we've done in three years."

That's after businesses cut $169 billion from inventories during the recession, he said.

By The Numbers: ISM Monthly U.S. Manufacturing Customers' Inventories Index.

"Christmas was a little stronger than most people expected and some people actually lost sales because they didn't have product," he said. Delivery delays hit 63 percent over the holidays, a sign "we clearly had overcut our inventories."

The dramatic increase in freight volume reported by everyone from ocean shipping lines to motor carriers corrected that imbalance, he said.

Since speaking at the SMC3 conference in West Palm Beach, Fla., Ratajczak has seen more signs that the inventory rebound is beginning to stall.

"Without 2 to 3 percentage points of growth being contributed by inventory changes, a definite stall is likely," he said in his July 7 weekly economic report for Morgan Keegan[/logistics-economy/inventories-inch-upward-sales-dip].

By The Numbers: ISM Monthly U.S. Manufacturing's Inventories Index.

It also mirrors statistics and reports that predict freight volume will grow at a slower pace in the second half of 2010.

For instance, TransCore's truckload spot freight index, an early indicator of trends in contract trucking, dropped 11 percent in June. Other indices show capacity tightening as freight demand slips.

Ratajczak calls for the restocking binge to taper off in "another month or so," pushing any freight slowdown into the peak shipping season or beyond.

An increase in consumer spending could affect that timing, but Ratajczak foresees only "very modest" growth in spending this summer, which means it will take more time -- and lower prices -- to move stock off the shelves.

That's reflected in an increase in the inventory to sales ratio tracked by the Commerce Department, a measure of how long it takes to sell goods. The ratio rose to 1.14 in May from a record low of 1.13 in April.

By The Numbers: U.S. Retail Inventory to Sales Ratio.

-- Contact William B. Cassidy at wcassidy@joc.com.