Since the end of the Great Recession, trucking industry revenue has outpaced the growth in the general economy, benefiting from a resurgence in manufacturing and growth in U.S. exports that spurred freight demand as truck capacity tightened.
That recovery allowed the nation’s 50 largest trucking operators by revenue to increase sales 9.3 percent in 2010 and 11.6 percent in 2011, following a 17.7 percent plunge in revenue in 2009, the year the recession hit carriers the hardest.
As the clock winds down on the third quarter of 2012, signs point to trucking revenue growth slowing from earlier in the year, but still outpacing U.S. economic expansion of just 1.7 percent in the second quarter.
Truck tonnage, while still rising year-over-year, was flat sequentially from July to August, and trucking hiring slowed to a crawl last month. “Few shippers want to be caught with surplus inventory, given all the uncertainty surrounding the upcoming national election,” equity research firm Stifel Nicolaus said in an Aug. 28 note to investors.
Add Europe’s deepening financial crisis and a marked slowdown in industrial production in China and uncertainty becomes, well, a certainty.
Truck capacity remains tight, in a “rough” or “tenuous” equilibrium in many markets, which props up pricing and protects vulnerable carrier profits. But rising fuel and labor costs are putting more pressure on carriers and shippers. Trucking rates, outside the spot market, aren’t likely to drop, but trucking profit margins — already so thin that some companies say they can’t invest in new equipment or higher wages for drivers — are likely to get thinner. Truckload rates increased 1 percent year-over-year in August, according to Cass Information Systems.
At the end of August, Landstar System, the fourth-largest truckload carrier, lowered expectations for 7 to 10 percent year-over-year revenue growth in the quarter to the mid-single-digit range, citing a “very choppy” trucking environment.
“Daily load volume trends have been somewhat inconsistent” in the quarter, Henry Gerkens, Landstar chairman, president and CEO, said during the company’s mid-third quarter conference call with investment analysts on Aug. 30. Load volumes increased “10 percent one day and (were) flat the next compared to the prior year.”
That compares with an 8 percent increase in load volume in the second quarter at Landstar and a 9 percent increase in volume during the first quarter of 2012.
There’s no doubt Landstar System is growing, but the company isn’t growing as fast as it was in the first half of 2012. And Landstar, of course, isn’t alone. “Recent truck freight indicators are generally moving sideways (at best), whether we look at tonnage, loads, or rates, and mirror softening data from other parts of our coverage,” Jefferies analyst Stephen Volkmann said in a Sept. 10 report to investors.
Jefferies doesn’t see the market going downhill, however. “Commentary from industrial companies suggests that demand in North America has moderated somewhat but generally remains solid,” Volkmann said. “We continue to believe that underlying conditions remain positive and that demand will return following the current pause.”
It’s important to remember that summer is a slow period for trucking. Last year, however, many carriers reported steady freight gains in August, followed by a surge during the peak shipping season that lasted well beyond Thanksgiving. It’s possible the quarter will finish stronger than it began, and October will be better, but few transportation operators are willing or able to place big bets on that.
Others also see the economy moving sideways, including James Welch, CEO of less-than-truckload operator YRC Worldwide. “Some days you feel it’s getting better, some days worse,” Welch told the JOC last month. “We’re in a flat spot right now. I’ll be curious to see what happens as seasonal holiday stocking begins.”
For many carriers, the question is, “Where’s the peak?” Post-recession, the pre-holiday shipping season seems to arrive later and end later as retailers and shippers gauge consumer demand and balance inventory right down to the last-minute gift purchased on Christmas Eve.
JOC Economist Mario O. Moreno expects containerized ocean imports to accelerate during the second half of 2012, with full-year growth of 4.6 percent. Truckers are waiting.
Peak-season imports are needed to compensate for lower domestic or export freight demand from U.S. manufacturers. The Institute of Supply Management’s manufacturing index fell to 49.6 percent in August, its third straight month below 50 percent — the cutoff point indicating growth — and the worst reading since the beginning of the recovery in July 2009. U.S. exports decreased 1 percent in July to $183.3 billion, the Commerce Department reported, as U.S. exports to Europe alone plunged 11.7 percent. That translates to fewer trucks hauling manufactured goods on U.S. highways to ports.
For-hire truck tonnage rose 3.7 percent in July from a year earlier, but was flat compared to June and likely will decelerate, according to the American Trucking Associations. “July’s reading reflects an economy that has lost some steam, but hasn’t stalled,” ATA Chief Economist Bob Costello said in late August.
Truckers and shippers look to consumers for a peak-season push. There’s good news on that front: The U.S. Gallup Economic Confidence Index jumped 11 points for the week ending Sept. 6, its biggest one-week improvement since 2008.
But one week’s bounce does not a rebound make. Freight shippers and haulers may have to wait until Nov. 6 for a bigger bounce in consumer expectations.