Recovery Stalled on Tracks?

Blame it on soaring fuel prices, broader commodity prices or an unending flow of harsh weather. For whatever reasons, this spring has seen the freight recovery stall.

Major U.S. freight railroads had their best week so far this year at the end of March. That’s actual freight volume measured each week in carloads and intermodal units, instead of year-over-year comparisons. Although intermodal appears to be picking up again — the container side of that business reached the high point of the year in mid-May — it lost about seven weeks of gains. Even worse, carload shipments of bulk commodities and heavy goods from metals to finished vehicles are running well behind early spring levels.

Likewise, the trucking industry has seen a traffic slump as well. April’s truck tonnage index from the American Trucking Associations fell 0.7 percent.

A continuing bright spot is exports. The Commerce Department said inflation-adjusted exports of goods and services grew at a 9.2 percent annual pace in the first quarter, while the far larger import category increased 7.5 percent. And ocean container rates have stiffened in recent months after starting the year on a decline, as import traffic has strengthened. That suggests some renewed freight demand is in the pipeline.

Still, the domestic traffic trends are worrisome, and probably point to something more than what seems like an unending series of turbulent and sometimes deadly weather events. For instance, the Institute for Supply Management’s gauges of both factory and non-manufacturing activity slowed in April to their lowest levels in months, still showing growth but not as much as earlier in this year.

And in the first quarter, the U.S. economy only grew by 1.8 percent. In another example, the Richmond Federal Reserve Bank said its May 11 snapshot of business in the Carolinas shows activity there “declined materially” from early April

Economists recently cut their full-year estimates for how much the U.S. will grow in 2011, pointing to the commerce-sapping fuel price surge as the main reason. It cuts into business and household spending by raising costs of a staple item and pushing consumers to forego other purchases. This writer just finished a car trip to and from Ohio, paying $1 a gallon more than a trip earlier this year into North Carolina. Some long-haul truck drivers would now have to pay $800 to completely fill up both tanks on a rig.

Now, this is not to say a new recession is forming. Some key industrial rail cargoes are finally starting to strengthen again, and when Canadian traffic is included intermodal volume last week was at a high for the year. Ocean shipping rates have strengthened recently, as the busiest time approaches for boxed imports. And things are better overall than a year ago, when a freight slowdown became part of a “double-dip” recession risk.

But there are risks nonetheless. The U.S. economy has been slower in April and May than even the slow-growth first quarter, and jobless insurance claims are starting to edge higher again. For two months or more the economy has been in a rut, much of it tied to soaring fuel costs, and the highest demand time for motor fuel starts now.

-- Contact John D. Boyd at jboyd@joc.com. Follow him on Twitter @jboydjoc.

Please consider registering in order to access the full article.