The severe weather that struck most of the U.S. over the last few months combined with diesel fuel prices that are increasingly disconnected from the effects of supply and demand are clouding the freight picture for the trucking industry. For example, the American Trucking Associations’ (ATA) for-hire truck tonnage index decreased 0.5% in February this year, following a revised 1.9% increase in January, despite many carriers reporting an uptick in demand for freight capacity.
“The tonnage reading is difficult to interpret because of the severe winter storms that impacted truck freight movements during February, particularly on the East Coast,” noted Bob Costello, ATA chief economist. “[But] I continue to hear from motor carriers that both demand and supply situations are steadily improving.”
“The weather really did impact our ability to read what’s going on with freight,” Eric Starks, president of research FTR Associates, told FleetOwner. “We’re going to have a distortion in the data for a few months as freight that was expected to flow in February probably got pushed to March. We’ll have a clearer picture of what’s really going on by mid-April.”(See photos from the Washington D.C. blizzard this winter)
In terms of the economic scheme of things, the February snowstorms further obscured the big picture. In its first quarterly report of 2010, the UCLA Anderson Forecast renders a “bipolar” diagnosis for the national economy – noting that slow-but-sure growth in the national gross domestic product (GDP) seems to be co-existing with a U.S. unemployment rate expected to remain in double digits until 2012.
David Shulman, the group’s senior economist, said overall economic growth will be held back by declines in non-residential construction and stagnation and retraction in the state and local government sectors. The UCLA forecast holds that GDP is expected to grow at a 3.2% rate for the first quarter of this year, and then level off to about 2%-- leaving 2010 with overall growth of around 2.3%.
In 2011 and 2012, GDP is forecasted to be 2.3% and 3.2% % respectively, Shulman added, yet payroll employment is still predicted to be two million jobs below the 2007 peak even at the end of 2012.
Still, ATA’s Costello said that while he expects to see some freight volatility on a month-to-month basis throughout this year, the trend line should be for moderate growth.
Further complicating the picture for trucking is the wacky behavior of fuel prices. Despite the winter-related decline in freight volumes and trucking mileage, the national average price of diesel jumped from $2.78 at the start of February to over $2.93 by late March, mirroring the increase in oil prices from $80 to $83 per barrel over the same period.
That’s all due to the rapid disconnect between fuel pricing and supply-and-demand factors over the past few years, explained Denton Cinquegrana, editor- West Coast spots for the Oil Price Information Service.
“I can’t stress this enough: take everything you know about supply-and-demand’s impact on diesel prices and, while not necessarily throwing it all out, make room on the shelf for other factors,” he told FleetOwner. “Oil prices – and the prices of the fuels refined from it – react more and more to other economic trends than pure supply-and-demand factors.”
For example, the flow of investment dollars into oil futures by multi-billion dollar hedge funds, Cinquegrana noted, is one of those factors changing the behavior of prices. “Truckers need to take a ‘macro-economic’ view of fuel pricing now, because things such as a rise in the Dow Jones or a positive jobs report can cause oil prices – and thus diesel costs – to rise,” he explained.