The downturn in freight volumes has stabilized, but excessive inventories throughout the supply chain imply the early stages of the recovery will be painfully slow. Excessive inventories disrupt the flow of commodities through the supply chain since retail sales fail to stimulate manufacturing output upstream as retailers and wholesalers satisfy sales volumes by drawing down inventories.

The recovery in freight volumes, however, will be led by consumer nondurable goods, since retailers' inventory-to-sales ratio has begun to trend downward, implying replenishment will accelerate as inventories approach equilibrium. As a result, freight volumes will slowly gain momentum.

The freight recovery of consumer durable goods will lag the recovery in consumer nondurable goods because consumer durable goods retailers will have greater difficulties getting inventories in equilibrium. Households are still in the process of strengthening their balance sheets, increasing savings and lowering debt levels, which dampens consumer spending, particularly for durable goods, whose replacement cycles can be extended. This implies a longer period before inventories are replenished as compared to nondurable goods retailers.

Shipment volumes of business equipment and machinery will lag the recovery of consumer goods freight volumes since businesses react to changes in the business environment. Businesses have substantially lowered capital expenditures on machinery and equipment. The decrease in investment spending has created excessive inventories for retailers and wholesalers. Investment spending will remain weak for the next few quarters.

Freight volumes within the manufacturing segment of the supply chain will lag the recovery in freight volumes at the wholesale and retail levels of the supply chain, since wholesalers and retailer must first get their inventories in equilibrium with sales in order to spur orders for manufactured goods.

Commercial Motor Vehicle Consulting foresees a broad base upturn in manufacturing activity in the fourth quarter as wholesalers' and retailers' inventories should be in equilibrium with sales by the end of the third quarter. This will stimulate shipment volumes of raw materials and intermediate goods into final goods producers' facilities.

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 or 516-869-5954.