With tonnage rebounding strongly in July and capacity remaining extremely tight, the trend lines seemingly have nowhere to go but up for trucking at least for the rest of 2014.
The American Trucking Associations (ATA) noted that its for-hire truck tonnage index increased 1.3% in July after slipping 0.8% in June, reflecting a 0.4% gain in industrial production during July – the sixth consecutive monthly gain, according to the Federal Reserve – with manufacturing output advancing 1% percent in July, its largest increase since February.
The Federal Reserve added that production of motor vehicles and parts are responsible for the lion’s share of that industrial growth, jumping 10.1%, while output in the rest of the manufacturing sector rose just 0.4%.
Bob Costello, ATA’s chief economist, noted that compared with July 2013, the trade group’s tonnage index is up 3.6% – the largest year-over-year increase in three months – with year-to-date volumes up 2.9% compared to the same period in 2013.
“After a surprising decrease in June, tonnage really snapped back in July,” Costello added, noting that tonnage is up 4.9% overall since January.
“This gain fits more with the anecdotal reports we are hearing from motor carriers that freight volumes are good, he said. “The solid tonnage number in July fits with the strong factory output reading and a jump in housing starts for the same month. I continue to expect moderate, but good, tonnage growth for the rest of the year.”
Jonathan Starks, director of transportation analysis for research firm FTR Transportation Intelligence, told Fleet Owner that as a result of strong freight demand carriers should be able to keep winning rate increases going forward.
“Every indication is that rates are continuing to trend up and stay in the mid-single digits versus year-ago comparisons,” he said. “Spot rates are a little stronger, but they actually had a bigger hole to dig out of coming out of the recession. Contract rates will show more muted gains.”
Starks noted that FTR’s Shippers Conditions Index (SCI) for June improved a point from the previous month to a reading of negative 6.5 – and improvement may be short lived, however, as both spot rates and contract rates to move freight are increasing in a full capacity environment.
“As the fall shipping season surge comes to fruition, conditions for shippers will only deteriorate more,” he explained. “To date in this recovery, aside from the weather-plagued winter of 2014, freight growth has been both fairly stable and relatively modest. This has allowed fleets to operate with very little excess capacity and keep contract rates relatively low as they focused on base-load contracts.”
As a result, Starks said that means much of the freight demand fluctuations are shifting to the spot market, where price swings can be much more dramatic.
“Spot rates have started to show an early upward movement at the end of the summer season, highlighting potential capacity issues as we move into the fall freight shipping season,” he stressed. “Contract rates will be moving up, but it will be wise to watch spot rate activity to see how demand and capacity are matching up.”
Starks added that the move by several major carriers to initiate major driver pay increases – notably Swift Transportation and U.S. Xpress Enterprises – also indicates confidence levels are high across much of the trucking industry.
“Driver pay is certainly a big issue – it really highlights that carriers feel that the recent gains will continue,” he explained. “Driver pay is often a sign of fleet confidence – and confidence is certainly much higher than a year or so ago.”