RECOVERY IN FREIGHT VOLUMES IS MOVING FAST NOW, BUT MAY NOT LAST
The freight recovery continues to expand across commodity groups as business investment expands and consumer spending and exports grow, reflecting a broad-based economic recovery. The lone exception to this are building material products, as construction activity (Chart A) will remain at depressed levels for an extended period of time.
The growth rate of freight volumes is receiving a temporary stimulus, roughly two quarter's worth, from the rebuilding of depleted inventories. Because of lean inventories, wholesalers' and retailers' orders for manufactured goods reflect a rebuilding of inventories and moderate sales growth. Once wholesalers' and retailers' inventories are rebuilt, which should be by the end of the second quarter, then the growth rate of freight volumes (Chart B) will moderate, expanding at roughly the growth rate of final sales to domestic purchasers.
Generally, a deep downturn in consumer spending results in a strong recovery. That recovery will be tempered this time, though, as CMVC predicts only a gradual recovery in consumer spending because of the high-debt, low-savings situation in household wealth. Household balance sheets imply consumers can sustain only moderate growth in consumer spending, which makes up roughly two-thirds of final sales to domestic purchasers, and as such has the largest influence on freight growth.
Exports will lift freight volumes within the manufacturing segment of the supply chain at a slightly faster growth rate than those in the wholesale and retail segments. In general, the global economy does not have large imbalances like the U.S. economy, so the global economy is expanding at a faster growth rate than the domestic economy, stimulating demand for U.S. products. Capital goods will be particularly strong among the manufacturing segment.
In conclusion, the growth rate of freight volumes is moderately accelerating as wholesalers and retailers rebuild inventories while also satisfying expanding sales. This will not be a typical freight recovery as the growth rate continues to accelerate for at least several quarters. Once inventories are rebuilt, strong sustainable freight growth will require strong growth in consumer spending — and households' balance sheets can't sustain that growth. In the short term, consumer spending will expand at moderate growth rates as compared to past economic recoveries.
Carriers should be wary of speculative expansion in fleet capacity in the belief that truck capacity will become tight in the near future, thereby allowing fleets with excess capacity to gain share from carriers with limited capacity. The ratio of available loads to trucks will increase in the future and the pricing environment will become firm, but CMVC does not foresee truck capacity becoming extremely tight in 2010.
Commercial Motor Vehicle Consulting publishes the monthly newsletter “Visibility of the Supply Chain” for general freight carriers. To order a copy, contact Chris Brady of CMVC at email@example.com or 516-869-5954.