Economic warning lights are flashing around the globe, so why is Landstar System’s Henry Gerkens so confident about the outlook for his $2 billion trucking business?
Perhaps because Landstar still finds more than enough freight to fill the company’s trailers and has the leverage to raise rates, even as the economy flirts with another recession.
Despite “much talk” of a major economic slowdown or double-dip recession, “Landstar has not seen any evidence of a decline in freight volume activity,” Gerkens, chairman, president and CEO, said Sept. 2. Landstar’s load volume increased 5 percent in July and August from the same period in 2010, Gerkens told Wall Street analysts.
“Overall demand in the first two months (of the third quarter) has been relatively stable and pricing has remained strong,” he said. “In fact, the current (annualized) rate of volume increase was higher in August than July, and I anticipate an even larger rate of increase for September.”
In the same period, the non-asset carrier group’s truckload yield, or revenue per load, increased 9 percent, after rising 10.7 percent in the second quarter.
Other truckload carriers report healthy freight demand as well. “We’re seeing automotive rebound, and production is up,” said John White, president of U.S. Xpress, the truckload arm of U.S. Xpress Enterprises. The division operates about 5,200 tractor-trailers, and “I don’t have a lot of trucks sitting,” White said.
The truckload carrier is still turning down about 300 loads a day, partly because of tight capacity and partly because the shipments aren’t “strategically profitable.” In the second quarter, the Chattanooga, Tenn., company was turning down 600 or 700 loads a day, White said. “It’s a little less hectic than it was then,” he said. “We’re seeing supply and demand at something closer to an equilibrium.”
The gains for these pillars of U.S. domestic freight transport are completely, thoroughly counter to broader trends in international markets, where ocean and air carriers are seeing demand stagnant at best in an increasingly grim peak shipping season.
And the resilience among major carriers in the domestic freight market comes despite a U.S. unemployment rate north of 9 percent and other signs of gloom in the U.S. economy.
Bulk freight shipments on major North American railroads rose 1.4 percent on Sept. 3 week-to-week, to the highest level since April 2. Sales of U.S. motor vehicles, industrial equipment and aircraft pushed U.S. exports up 3.7 percent in July.
Heavy truck orders surged 11 percent in August after falling for three consecutive months, FTR Associates said. And FedEx is reportedly considering buying 50 widebody freighters from Boeing and Airbus to replace aging equipment.
“At least transportation keeps kicking, and that’s good,” said Eric Starks, president of Nashville, Ind.-based FTR Associates. Manufacturing, although weaker than earlier this year, is still freight’s lifeline, he said. “Even though we’ve seen a slowing in manufacturing, it still shows growth, and that’s showing up in the freight numbers.”
The Institute of Supply Management’s U.S. manufacturing index slipped 0.3 percentage points in August to its lowest point in two years, registering slim growth. At 50.6 percent, the index is down nearly 11 points from February, but any reading above 50 still shows U.S. factory output growing despite the economic slowdown.
“One of the big concerns is that if the economy starts to take a hit, will manufacturing follow?” Starks said. “That’s a big question mark going forward.”
Retail demand is also steadily filling trailers, despite low consumer confidence and high unemployment. “Most of the retailers are posting decent growth in same store sales,” U.S. Xpress’s White said. “We do a lot of work with Dollar Tree, Dollar General and Family Dollar. We’re getting a lot of demand from them.”
Target’s comparable store sales rose 4.1 percent in August year-over-year. In the same month last year, Target’s sales were up 1.8 percent year-over-year.
A Wal-Mart Stores spokesman said the retailer saw sequential improvements in traffic and comparable store sales in May, June and July. Wal-Mart’s fiscal second quarter was its best since its fiscal third quarter of 2010. However, comparable U.S. store sales for the quarter were down 0.9 percent from the previous year.
“Customers continue to struggle,” the spokesperson said. “We see a lot of customers coming in and shopping heavily around the first of the month, when they get their paychecks. They’re shopping paycheck to paycheck and buying necessities.”
Trucking company executives are “cautiously optimistic” freight demand is sustainable. “I don’t see any signs of a freight recession,” White said. That’s partly because inventories are at historic lows and getting lower, he said, which keeps more inventory in motion inside his trailers. The contraction in truck capacity that began before the recession also continues, he said.
Don’t relax too much, FTR’s Stark said. “It’s too early in the game to say that because freight is holding up, everyone’s being too pessimistic about the economy. Import numbers are a leading indicator, and while they haven’t collapsed, they’ve softened, and that’s not something we like to see. The next couple of months will be critical.”