Trucking’s Performance Beats Expectations

Trucking’s Performance Beats Expectations

The trucking industry ended 2012 on a stronger note than might have been expected. Although U.S. GDP shrank one-tenth of a percent in the fourth quarter, according to advance estimates, much of that contraction can be attributed to a 15 percent cut in federal spending, led by a 22 percent cut in defense spending, and, importantly, a significant decrease in private sector inventory investment.

Private businesses increased inventories by only $20 billion in the fourth quarter, compared with $60.3 billion in the third quarter and $41.4 billion in the second, according to the U.S. Bureau of Economic Analysis. That subtracted 1.27 percentage points from the fourth quarter change in real GDP, according to the BEA.

The GDP’s loss may have been trucking’s gain. That $101.7 billion buildup in inventories over the second and third quarters of 2012 translated into trucking activity in the fourth quarter, which also saw a boost in freight shipping attributed to reconstruction efforts after Hurricane Sandy. The American Trucking Associations’ advanced seasonally adjusted for-hire truck tonnage index surged 3.9 percent in November after falling 3.7 percent in October, and rose 2.4 percent in December, the best back-to-back gains of 2012, according to the ATA.

Spot market freight volumes rose 5 percent year-over-year in December, according to load matching giant DAT. Dry van volumes rose 13.1 percent in December. Inventories and inventory spending fell as goods were sped to consumers. Personal consumption rose 2.2 percent at the end of 2012 from the third quarter, and although consumer spending on services rose only 0.9 percent, spending on goods climbed 4.6 percent, the strongest showing since the first quarter of 2012.

Spending was especially strong in durable goods, up 13.9 percent, with motor vehicles and parts up 28.6 percent, and recreational goods and vehicles up 11.5 percent. Consumption of non-durable goods was up only 1.8 percent from the third quarter, led by spending on clothing and footwear, which rose 3.4 percent.

Manufacturing and housing gains also helped fill trucks. Housing starts soared 37 percent year-over-year in December and 28 percent for the year. Manufacturing output increased 0.8 percent in December, after rising 1.3 percent in November. In its most recent Beige Book report, the Federal Reserve Board noted increased manufacturing activity in six out of nine districts and higher transportation volumes in all six districts reporting transportation data.

At the same time, trucking capacity tightened from the third quarter and year-over-year. The JOC Truckload Capacity Index, based on available capacity at a group of large truckload carriers, fell to a four-year low of 82.4 in the quarter. And although Class 8 retail truck sales in North America rose 14.2 percent in 2012, most of those trucks were replacements for trucks nearing the end of their service life.

A 4.2 and 7.8 percent year-over-year leap in the Cass Linehaul Intermodal Rate Index in December and January reflects heightened concerns about truck capacity. Cass reports truckload linehaul rates were up 4.1 percent in January.

Rising operating costs dampened some fourth quarter profits, as reflected in industry operating ratios. Average less-than-truckload operating ratios ticked up 1.5 percentage points to 95.7, while publicly owned truckload carriers trimmed their average OR by 0.6 percentage points to 89.1. LTL yield increases that averaged 8.7 percent in the fourth quarter of 2011 were limited to 2.4 percent in the 2012 quarter, reflecting weaker rate hikes and fuel surcharge revenue. Average truckload yield rose 2.6 percent from the third quarter and 5 percent year-over-year.

Both DAT and ATA reported spikes in tonnage and volume in January, indicating inventory restocking may be under way following a fourth quarter draw down. ATA’s truck tonnage index shot up 6.5 percent year-over-year in January. The DAT North American Freight Index rocketed 42 percent from a year ago, thanks to unusually robust freight activity, despite some inclement weather.  

Contact William B. Cassidy at wcassidy@joc.com.