The second half of 2011 proved to be as challenging for freight and the broader economy as we predicted it would. In 2010, freight volumes driven by the economic recovery and inventory restocking grew well above domestic and global GDP and industrial production rates. During 2011, we saw the economy slow and with it inventory restocking, which is most apparent in the precipitous drop in global air freight.
In 2012 we expect a continued sluggish domestic and global economic backdrop, but we don’t expect a recession. Truckload volumes historically lead freight and the general economy. These carriers tend to serve the large, big-box retailers, and their demand levels tend to foreshadow and lead the volumes for more industrial driven rail and less-than-truckload tonnage by two to four quarters. We witnessed large carrier truckload loaded miles begin to slow meaningfully at the end of last June and remain relatively flat to modestly down year-over-year through third quarter of 2011. Meanwhile, the more industrial-driven rail and LTL volumes remained relatively strong — up 5 to 6 percent — through the first half of 2011 before flattening out year-over-year in July and August. The good news is that large truckload carrier volumes haven’t weakened in recent months and, if anything, strengthened seasonally in October and early November.
Going forward, we expect import volumes into the West Coast, which have been very weak for the past 18 months, to begin to improve into easing comparisons and a strengthening U.S. dollar, while conversely U.S exports weaken into slowing global demand. Look for stocks with U.S. and U.S. import exposure to outperform stocks with more global and U.S. export exposure.
This backdrop of domestic over international exposure and slow-but-steady growth without a recession, seems well-suited for most transport stocks.