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Truck freight rose 10.5% in December, the fastest pace in 13 years, as surges in manufacturing and inventory restocking propelled American Trucking Associations’ tonnage index to a record high.

The seasonally adjusted index reached 124.5, the trade group reported on Jan. 24, achieving the greatest year-over-year percentage growth since July 1998 and pushing the index above the previous high mark of 121.6 in January 2005.

“Not only did truck tonnage increase due to solid manufacturing output in December but also from some likely inventory re-stocking,” said Bob Costello, ATA’s chief economist, who also said he was surprised by the magnitude of the gain.

“Inventories, especially at the retail level, are exceedingly lean, and I suspect that tonnage was higher than expected as the supply chain did some restocking during the month,” Costello said.

During 2011, tonnage rose 5.9%, which also was the largest annual rise since 1998.

Month-to-month comparisons were equally favorable.

The index spiked 6.8% in December above November, eclipsing the 0.3% sequential increase in the prior month. The month-to-month improvement was the fastest since January 2005.

The trucking report underscored the strengthening economic picture.

The Federal Reserve on Jan. 18 announced a 0.9% rise in factory output in December, which was the highest growth pace in all of last year. Among the growth sectors were wood products, metals, machinery, plastics and chemicals.

In addition, the Commerce Department said on Jan. 26 that orders for goods meant to last three years or more climbed 3%, adding to the positive momentum.

For the full year, manufacturing activity as measured by industrial production rose 4.9% on the heels of 5.8% growth in 2010, ATA reported on Jan. 20. Though the increases were healthy, production still trails the record year of 2007 by 8.5%.

“Manufacturing remains an engine of growth,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets LLC in Boston, told Bloomberg News on Jan. 18, when he accurately forecast the December gain in factory output. “Manufacturing has benefited from exports to emerging markets. The more resilient those economies are, the better it is for U.S. manufacturing.”

While output grew, inflation remained tame, with consumer prices unchanged on a month-to-month basis in December and just 3% higher than a year earlier. Meanwhile, unemployment has fallen to a three-year low of 8.5%.

Other industry sources also noted wide-ranging progress.

“We expect truckers to benefit from inventory restocking, as holiday freight volumes were strong in December, coupled with low store inventories,” said Justin Yagerman, an analyst at Deutsche Bank. “We expect freight demand to remain seasonally strong during January/February, given solid retail sales (up 6.3% year-to-year in December) coupled with low inventories, growing consumer confidence, and stable income levels.”

Costello said that he believes tonnage will continue to show increases this year but not at the brisk pace of 2011.

Yagerman said trucking and other freight businesses will continue to see solid demand early this year because of “inventory restocking, positive manufacturing activity trends, solid retail sales growth and sustained improvements in the leading economic indicators.”

The Conference Board released a report Jan. 26 that showed a 0.4% increase in December on top of a 0.5% increase in November over October.

Also on a positive note was a Jan. 25 report from the National Association of Realtors that agreements to sell previously owned homes were at a 19-month high, possibly signaling a recovery for the housing market.

Still another indicator of strong demand last month was a Jan. 25 report from load-board operator TransCore, Portland, Ore., which said its North American Freight Index rose 11%.

That indicator, which measures spot market freight available on its load board, now has been at its highest level since 2005 for the past four months.

From the shipper side, a Dahlman Rose & Co. survey found that 42% of shippers surveyed in the fourth quarter were more confident that the economy is moving in a positive direction, analyst Jason Seidl said. That was a sharp improvement from the third-quarter survey when just 10% of customers showed growing confidence.

“Business conditions continue to improve, and responses indicate the rate of improvement is accelerating,” said a Jan. 25 report from UBS Securities that was based on a carrier survey. It was the eighth consecutive quarterly survey in which fleets noted improving business.

Source: Transport Topics

Tire manufacturers say that a shortage of materials combined with soaring global demand, has driven up costs of commercial tires.

Prices for “natural rubber and, later, synthetic rubbers, increased to unprecedented levels during 2010 and 2011. They have gone up . . . [to] levels which are still unprecedented in modern history,” said Walter Weller, vice president of China Manufacturers Alliance, Monrovia, Calif., which makes Double Coin tires.

“At the same time, steel, carbon black and oil have all increased continuously — not to mention transportation costs,” Weller explained in an e-mail. “The tire industry —right, wrong or indifferent — chose to implement increases in stages over this period of time and, for some manufacturers, more increases are needed, which is why you continue to see them.”

He added: “I would say that the more recent increases are probably a reflection of oil/carbon black/steel price increases than natural rubber.”

In addition to Double Coin, other manufacturers that raised prices include Goodyear Tire & Rubber Co., Akron, Ohio; Bridgestone Americas, Nashville, Tenn.; Yokohama Tire, Fullerton, Calif.; Continental Tire the Americas, Fort Mill, S.C.; and Toyo Tire USA, Cypress, Calif.

Michelin North America Inc. and Hankook Tire America Corp. did not respond to requests for comment by the time this story went to press.

“We see supply being short of demand for the near term — for sure, the next one to two years,” said Donn Kramer, Goodyear’s director of product marketing.

Kramer said that on Nov. 1, Goodyear raised U.S. prices on all brands of commercial tires, retreads and tread rubber by up to 10%.

And although Bloomberg News recently reported that the price of natural rubber has dropped by approximately 50% from its high in February 2011, Keith Price, Goodyear’s director of national media relations, said, “Most tire manufacturers use first-in, first-out accounting, [which results in about] a two-quarter lag on raw material costs on finances.”

“Say we’re buying natural rubber today and it’s lower than it was six months ago; it’s going to take five, six months for that to show up in our product cost,” he said.

Source: Transport Topics

Trucking may be on the cusp of one of its most profitable rides ever as freight demand in 2012 pushes against the limits of industry capacity.


The new year also could be historic in terms of regulatory changes, as federal officials continue to push for a ban on texting and cellphone use as part of a campaign against distracted driving. The Federal Motor Carrier Safety Administration is expected to issue new rules on driver hours of service and require the use of electronic onboard re-corders, while the National Highway Traffic Safety Administration is expected to implement a proposal to require electronic stability control systems on new heavy-duty trucks.

Congress will have to deal with highway funding legislation and may tackle proposals to increase truck weight limits and to provide federal oversight of bridge and tunnel tolls.

And, of course, it’s a presidential election year.

That makes Bill Graves, president of American Trucking Associations,“somewhat pessimistic” that much will get done in Washington.

“I think the die is pretty much cast as to what the relationship between Republicans and Democrats is going to be. So in that regard, if there are things that you want to see get done, you may be disappointed; 2012 may not be a very productive year.”

From a business perspective, the view is much more positive.

“The domestic freight market remains remarkably resilient,” David Tamberrino, an analyst for the investment firm Stifel, Nicolaus & Co., said in a report published Dec. 5.

“Supply and demand in the trucking sector are in balance, even though demand has recovered only about two-thirds of what it lost in the Great Recession,” he said.

Tamberrino said he expects freight rates to rise faster than inflation in 2012, and for both truck and rail operators to enjoy expanding profit margins.

A survey by Transport Capital Partners found that 61% of trucking executives surveyed in November expect volumes to increase in 2012, up from 45% in August, with only 2% of carriers expecting volumes to decrease, compared with 7.5% in August.

Three out of four executives surveyed said they also expect freight rates to increase.

“Most economists are seeing growth in the economy,” said Richard Mikes, a partner in Transport Capital Partners. “This is pushing more freight onto a very limited truck base, with shippers and brokers scrambling for trucks.”

Economists Nariman Behravesh and Nigel Gault of IHS Global Insight, an economic forecasting firm that provides data and analysis of freight trends to American Trucking Associations, said they expect the rate of gross domestic product growth to rise from 1.4% in 2011 to 1.6% in 2012.

“It remains a very muted expansion,” Behravesh and Gault said in a report published in November.

“We expect at least a mild recession in the eurozone, starting in the current quarter,” the economists reported. “That hurts export demand and corporate earnings, but not enough to tip the United States into recession.”

The risk of recession rises if Greece defaults on its debt “in a disorderly manner” and disrupts European and global banking systems, the report stated.

Another note of caution was struck by Andreas Renschler, head of Daimler AG’s truck unit, who said waning confidence, if it persists, could turn a modest slowdown in the global economy “into an outright recession.”

“We are monitoring the developments very closely, but we don’t see any reason for panic,” Renschler said in remarks prepared for the Tokyo Motor Show on Nov. 30.

ATA Chief Economist Bob Costello said he expects production and sales of new trucks and trailers to remain strong in the next year, as fleets continue to replace older equipment while at the same time keeping a lid on fleet expansion.

“There will be small capacity additions,” Costello said in a briefing for industry executives in late October. “But it looks like companies are doing it only where they have business.”

Other factors — including a possible reduction in the number of hours each day drivers can be behind the wheel and higher costs for equipment and fuel — will make it difficult for many trucking companies to expand.

“I don’t expect an oversupply of trucks anytime soon,” Costello said.

To stay ahead of rising operating costs, officials at GE Capital said fleet operators will need to continue to push up pricing in the year ahead.

“A lot of fleets like to compare rates to pre-recession levels,” said Dan Clark, head of GE Capital’s Transportation Finance Group. “They see they are at or above that level and are reluctant to go over. They need to use that old price and add ‘X’ amount. They cannot be satisfied where they are at.”

A survey conducted by CK Commercial Vehicle Research also shows solid demand for commercial trucks.

Company spokesman Chris Kemmer said 84% of survey participants who operate heavy-duty Class 8 vehicles and 33% of operators of medium-duty vehicles said they plan to purchase new equipment in 2012.

The orders for new equipment represent about 16% of the current population of commercial vehicles, and only one in four fleets said that they plan to add some capacity, Kemmer said.

Transport and logistics companies continue to invest in technology in order to make operations more efficient and respond to customer requirements.

A survey of chief information officers by the London-based media and event organizer eyefortransport.com found transportation management systems to be the most common area for investment, with 53% of respondents looking to buy in the next year, followed by mobile technology (44%), business intelligence (43%), customer relationship management (41%), electronic data interchange (39%) and track and trace (36%).

New labor management systems also are expected to gain favor, as fleet operators struggle to recruit and retain enough qualified drivers and mechanics and comply with new hours-of-service and safety regulations.

Mike Maris, senior director of transportation for Motorola Solutions, said he expects to see more consolidation among technology suppliers and greater use of hands-free devices in the truck cab.

The need for investment in technology, along with the improving financial position of motor carriers, is expected to spur mergers and acquisitions in 2012.

“Banks are still very reluctant to loan small trucking companies money,” said Andy Ahern of transportation consulting firm Ahern & Associates in a newsletter published in November. “So, there will be a substantial consolidation of trucking and logistics companies.”

A proposed change in how leases are accounted for on corporate balance sheets, however, could have a widespread detrimental effect on the U.S. economy, triggering a $10 billion reduction in GDP and 60,000 fewer jobs by 2016, according to a report issued by the Equipment Leasing and Finance Association in December.

The Financial Accounting Standards Board and the International Accounting Standards Board plan to issue a final draft of the new accounting rules in April.

The rules would require companies to record virtually all leases as debt rather than an operating expense on their balance sheets.

Such a change would add an estimated $2 trillion in debt to balance sheets of companies in a wide range of industries, including transportation, retail and manufacturing, utilities and construction firms.

“Many businesses do not object to having to record leases on their books,” ELFA officials said. “Rather, they object to how the proposal would require them to account for and report lease transactions, contending that aspects of the proposal are too complex, impose burdensome regulation on businesses and do not accurately reflect the economics of the lease transaction.”

ELFA said that it wants the accounting boards to preserve a distinction between capital leases and operating leases and to offer relief from some of the reporting requirements in order to reduce the negative consequences of the proposal on the U.S. economy.

Source: Transport Topics

This slow economic recovery is not as unusual as many people think, and trucking continues to outperform it.

This slow economic recovery is not as unusual as many people think, and trucking continues to outperform it, said trucking economy expert Noel Perry Thursday - and there are signs it will continue to do so, including signs we may be nearing the end of the housing slump.

In FTR's "State of Freight" webinar, Perry, who is a senior consultant to the transportation research company, as well as principal of his own firm, Transport Fundamentals, showed a slide showing that while recovery from the most recent recession is historically one of the slower ones, it tracks almost exactly with the recovery from the 2001 downturn.

"Recoveries have gotten slower over time," he said. "What this says is the behavior of the economy this time is actually pretty predictable. It also says we're not having a weak recovery, we're having a normal one. If the last recovery was good for you, this one should be the same. This is not doom and gloom at all."

Perry says the forecast for U.S. GDP is expected to grow between 2.5% and 3% next year.

Of course, he said, there are some downside risks, including a likely recession in Europe, a stagnating global economy, China's real estate bubble, and longer-term, the U.S. debt.

Another graph illustrated one way this recovery IS different from past ones: truckload growth and industrial production growth are growing more rapidly than gross domestic product.

"So even though the economy is sort of slow from a GDP standpoint, from a transportation perspective, it's not. This has been a pretty good time for transportation, and these facts show it pretty clearly."

More good news, Perry said, is that we are beginning to see signs of a modest housing recovery. Data from the Calculated Risk blog shows the inventory of existing homes is now back down to below 3 million units, which is the level it was at in 2005, "so king of in a normal range."

When there's a large surplus of existing homes, people aren't going to build new homes, with all their attendant truckloads of building materials and big-ticket consumer durable goods to put in them. This data, Perry said, suggested we may be close to consuming that surplus, and people may start building again.

In fact, partly because of that, Perry is optimistic about the outlook for flatbed carriers.

Overall, Perry said, expect moderate growth in the U.S. truckload business next year, in the 2% to 4% range.

Trucking will face a driver shortage next year, Perry said, the worst of which will likely hit in late 2012 as more government regulations on drivers start taking effect.

That, of course, will affect pricing, and Perry says there is growing evidence that truckers are getting a big bolder when it comes to rate increases. When you take into account fuel surcharges, he said, he's expecting 7% to 9% increases next year for truckload, while LTL may be up in the double digits by the end of the year.

But don't just expect rate increases to fall in your lap, Perry said, capacity crunch or no. When asked how fleets can take advantage of these rate increases, Perry said, "You take advantage of pricing opportunities by organizing to do so. You have to change your culture and put in a price increase plan," which involves training the sales force. "A lot of fleets don't do so, and end up falling behind."

Source: TruckingInfo.com