Trade jitters troubling Wall Street haven’t shivered their way to the pallets stacked in Old Dominion Freight Line’s (ODFL’s) freight terminals and aren't ready to load into tractor-trailers. The third-largest US less-than-truckload (LTL) carrier Tuesday said LTL shipments rose 11 percent year over year in May, and those shipments were 3.9 percent heavier, as freight demand rolled on.
LTL tons per day jumped 15.3 percent year over year, and in the quarter-to-date period, LTL revenue per hundredweight rose 6.7 percent, a sign rates and profitability are rising too. “Our May and quarter-to-date operating metrics remained strong, reflecting continued strength in the economy and a positive yield environment,” Greg C. Gantt, ODFL president and CEO, said.
“The substantial growth in our LTL tons per day reflects ongoing gains in market share, which we believe is driven by our ability to deliver superior service at a fair price. In addition, we have invested in long-term capacity to accommodate increasing demand for our services,” he said. ODFL has opened three service centers this year and plans to build dozens more.
Despite tariff/trade war threat, US economy is keeping goods moving
ODFL’s mid-quarter update reflects the fact that despite uncertainty over tariffs and trade wars, the US economic engine is keeping goods moving. That’s apparent in the Institute for Supply Management’s Non-Manufacturing Index (NMI), which measures the strength of 14 sectors, including wholesale and retail trade, in similar fashion to ISM’s Purchasing Managers' Index (PMI).
The NMI rose from 56.8 in April to a reading of 58.6 in May, according to data released Tuesday. The PMI, released June 1, also climbed, rising from 57.3 in April to 58.7. Any reading above 50 represents expansion, and gains point to faster growth. “Demand remains robust, but the nation’s employment resources and supply chains continue to struggle,” the ISM said.
“Business is starting to increase,” one of the non-manufacturing companies surveyed by ISM for the NMI said. “We spent two years reducing our inventories to a level to support the current business climate. Now the uptick is faster than anticipated and supply is out of alignment with demand, which is causing many stockouts and shortages, and the need to expedite inventory.”
In particular, that shipper pointed to “a shortage of domestic trucking resources [especially flatbeds]” that affected service. “We [are] working to minimize the impact of the tariff on steel and aluminum,” the company said. “The supply chain is shuddering because of a lack of drivers and equipment causing delays in multiple modes of transportation,” a wholesaler told the ISM.
No stockouts so far
Those “shudders” aren’t causing stockouts “yet,” the shipper said, “and we are increasing inventory levels in anticipation of worsening conditions.” More inventory, however, does mean putting more freight into tractor-trailers. The NMI inventory rose 0.5 percentage points in May to 57.5. The PMI manufacturing inventory reading was 50.2, however, and dropping.
In addition to consumer goods retail, the NMI includes industries such as construction, agriculture, forestry, and accommodation and food services, all of which could expect stronger seasonal demand as the second quarter draws toward the third quarter and summer. Punitive tariffs may affect their costs but may not affect the amount of freight they actually ship.
The Cass Freight Index for April, the most recent index available, showed shipper expenditures climbing faster year over year, at 12.8 percent, than shipments, which rose 10.2 percent.
“The current level of volume and pricing growth is signaling that the US economy is not only growing, but that level of growth is expanding,” Donald Broughton, managing partner of Broughton Capital, said in his report on the Cass Freight Index. “April’s 12.8 percent increase clearly signals that capacity is tight, demand is strong, and shippers are willing to pay up for services to get goods picked up and delivered in modes throughout the transportation industry.”
Contact William B. Cassidy at email@example.com and follow him on Twitter: @willbcassidy.