In a presentation Thursday, Oct. 4, at the McLeod Software Users Conference in Birmingham, Ala., American Trucking Associations Chief Economist Bob Costello was sober about the trucking industry’s near-term outlook.
“Unfortunately, I don’t have the best news for you today,” Costello began. In the spring, early summer and even mid-summer, “I was a little more optimistic than I am now,” he said.
Among the trouble signs of continued weakness in freight demand Costello cited are forecasts for a longer housing slump, a slight uptick in inventories relative to sales and slower growth in manufacturing – especially in manufacturing when viewed by weight rather than value of goods. Another factor in the near-term outlook is that the fall freight season no longer offers the huge spike in demand that it once did, Costello told conference attendees.
The fall bump in demand related to holiday spending has greatly dissipated, said Costello, who argues that the rise in popularity of gift cards has pushed more purchasing into January and February at the expense of November and December. In addition to this structural change in freight patterns, most experts see weaker growth in this year’s holiday spending. So “structural and cyclical trends suggest a subdued fall freight season.”
ATA has lowered its near-term forecast. Costello doesn’t expect a recession, but he does think growth will be slow at least through the first half of 2008.
The downturn hasn’t hit everyone equally, Costello noted. With its reliance on housing, flatbed has been hit hardest. More broadly, truckload loads are up this year, but LTL shipments are down. And within the truckload segment, the loads are up for large carriers but down significantly for small carriers. Costello attributes this trend to a concerted effort by large truckload carriers to get out of very long-haul freight, leaving those loads to smaller carriers.
One positive development for trucking is that the industry is beginning to work through the excess capacity it built during 2006, Costello said. In 2006, demand as measured by the number of loads in the truckload segment was almost flat at an increase of 0.3 percent. Meanwhile, spurred principally by carriers buying trucks to avoid new engines, the net increase in the truckload fleet was 2.3 percent. Through July 2007, however, loads are up 1.3 percent while the size of the truckload fleet has declined 0.9 percent, Costello said.