June ATA Tonnage

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ATA Tonnage:

The Seasonally Adjusted for Hire Truck Tonnage increased 2.7% compared to April. Increased 5.7% compared to May 2015. The Non-Seasonally Adjusted tonnage increased 2.4% compared to April. Increased 4.7% compared to May 2015.

Both charts: Although tonnage hauled is higher than the previous month and year, the rate of change has been steadily decreasing but still in positive territory. The “softness” in tonnage shipped continues.

ATA Comments:

“Following two consecutive decreases totaling 6 percent, May was a nice increase in truck tonnage,” said ATAT Chief Economist Bob Costello. “Better consumer spending in April and May certainly helped, but economic growth remains mixed and I’d expect the recent choppy pattern in tonnage to continue for the next quarter or two. We recently received good news on the inventory cycle, with the total business inventory-to-sales ratio declining for the first time in nearly a year. While one month doesn’t make a trend, this was good news for the trucking industry.”

Cass Freight Index for May:

“Although North American freight shipments continued to climb in May, they are still well below those of the last several years. Expenditures for freight fell for the third time in five months. The current economic outlook is volatile, which has led to slow uneven growth. What is perceived as a strong sign one week often looks like a sign of economic weakness the next.”

“The May freight shipments index rose 1.3 percent from April. This represents the high point so far for 2016, but it was still 5.8 percent below May 2015 and 7.0 percent lower than May 2014.”

“Freight payments declined 0.4 percent in May, coming in at 10.1 percent below May 2015. This slow downward trend is completely opposite of the upward trend of previous years. The restrained growth in freight shipments—coupled with abundant available capacity—has pushed down rates.”

Cass Truckload Linehaul Freight Index for May:

“The Cass Truckload Linehaul Index fell another 1.2% year over year in May after declines of 0.6% and 2.3% in March and April respectively. With three consecutive months of price declines, the domestic truckload market continues to face softer demand and excess capacity.”

Some of the contributing factors:

  • Driver pay increases
  • overall fleet growth
  • reduction in carrier bankruptcies
  • an easing of the 34-hour restart rule

Cass notes: “The restrained growth in freight shipments—coupled with abundant available capacity—has pushed down rates. In addition, according to DAT Solutions, “total carrier revenue has been impacted by a 35 percent drop (10 cents per mile) in the fuel surcharge compared to last May.” Many trucking companies, such as Swift Trucking, are adjusting the size of their available fleet by parking trucks. In Swift’s case, 300 trucks were removed from its active fleet this Spring.”

Werner’s recent earnings report came in a little over half of the amount expected.

Morgan Stanley’s June 15th Truckload Freight Index:

“Our dry van TL index increased sequentially and was stronger vs. seasonality, driven by outperformance in TL demand. We believe the strength in our TLFI was influenced by produce season and the CVSA’s annual International Road check to some extent.” “Our straight-line forecast suggests that our TLFI will fall below 2009 levels in late August and stay below 2015 levels (and LT trend-line) for the entire year.”

Morgan Stanley’s June 8th Truckload Sentiment Survey:

“Despite improvement in demand and supply sentiment, current TL rate sentiment fell sequentially and underperformed seasonality as 15% of respondents described current rates as higher YoY, while 49% characterized them as lower, with the higher/lower sentiment spread decreasing 190 bps sequentially.”

DAT Load Board Update: June 12th-18th

Van Freight Demand: “Load-to-truck ratios remained strong last week, although down from their high the previous week. Van load posts were down 2.9% last week after spiking the week before—the week that followed the shortened Memorial Day week.

Reefer Freight: Reefer load availability increased by 2.7%, and truck capacity fell 5.5%. As a result, the national load-to-truck ratio increased 8.7%, from 4.3 to 4.6 loads per truck. The national average reefer rate was unchanged.”

Flatbed Freight Demand: “Flatbed load posts dropped 1.8% following a spike the previous week. Capacity added 9.7%, which dropped the load-to-truck ratio at 18.2 loads per truck. The national average flatbed rate increased 2¢ compared to the previous week.”

Refrigerated Freight Demand: “Reefer demand remained strong last week, although numbers were down compared to the previous week, which was the first full week following Memorial Day. Reefer load posts declined 4% while truck posts increased 7.8%. The load-to-truck ratio fell 11%, from 5.9 to 5.3 loads per truck, but that represents the second highest ratio since early January. The national average spot market rate rose 2¢ for reefers, compared to the previous week.”

Economic Indicators: (The below comments are based on the rate of change as opposed to month over month or month over year absolute comparisons)

Big picture shows continued weakness in trend for overall economy GDP is trending down but still in positive territory.

Manufacturing:

  • Industrial Production is going down and below last year- 1 month and 3 month has a small curve that shows possible improvement coming ahead
  • Capacity Utilization leads Industrial Production and is now showing an increase in the rate of change and above last year
  • Manufacturing Orders- a reliable leading indicator for Industrial Production- not including aircraft and defense is stuck at a decreasing rate of change and below last year-this mitigates Capacity Utilization
  • PMI/ISM index- rate of change is increasing and above last year (improving)

Jobs:

  • Initial Claims- the claims are rising faster (bad) and no longer negative (bad)- some say it could be the Verizon strike
  • Continuing Claims is also rising
  • Absolute (as opposed to the rate of change) # of employee’s growth rate is softeningstill positive but rate of change is slowing down
  • Average work week has been in a downward trend but might be recovering
  • Job Openings/Layoffs/Terminations (JOLT)- openings and hires are turning down- still positive but starting to slow down- a favorite of Janet Yellen, Federal Reserve Chairman
  • Total non-farm payrolls also dropping- wrong direction

Health of Consumers:

  • Net disposable income/wages- continue to show solid improvement- steady 4%+
  • Savings rate is slowly rising- 5.6% of disposable income is being saved (includes 401K savings)- “not bad”
  • Consumer credit (total) rate of change is starting to drop (6.45% vs. 7% last quarter)
  • Personal consumption/spending- all components are increasing and above last yeargood
  • Durable Goods rate of change is barely increasing and above last year- not confirmed yet
  • Non-Durables (food, gas, apparel, toilet paper, make up, etc.) has turned up- a nice recovery- inventory to sales ratio is improving but more in the non-durable than durable

A check on inflation- Sources are wages, interest rates, commodity prices, money supply stable

  • Wages- going up but because of softening on hiring/unemployment- not inflationary
  • Interest rates- very low. Easy money = inflationary
  • Commodity prices are starting to rise = inflationary
  • Money Supply stable = not inflationary

Producer Price Index- rate of change increasing and but below last year
Consumer Prices: rate of change increasing and above last year
Money Supply- at historical averages- good

Residential construction- at an inflection point

  • Residential Construction permits rate of change dropping and lower than last year
  • Residential starts are in an uptrend but may be starting to follow permits
  • Residential construction sales back to increasing rate of change and above last year although barely above after a brief rebound- this is new home sales
  • Existing home sales- not correlating to new home sales right now- could this be due to less inventory of homes for sale so going to new home sales?

Regulations in the transportation industry:

  • HOS still continuing as is for now
  • CSA scores won’t be posted for a couple of years according to the FMCSA
  • ELD Mandate has passed so all carriers have until the end of 2018 to become compliant. Many believe this will hurt capacity by 3%-5%; some predict more than that

Conclusion:

There is softness in tonnage due to the continuing slowness in manufacturing. Many people are turning to the Federal Reserve to get us out of this economic doldrum. Unfortunately, the slowness in our economy is not a policy issue, it is a structural issue. Until the structure changes (overburdened regulations, increasing taxes, government spending at all levels beyond the ability to pay it back, etc.) we will stay the way we’ve been moving since 2008.

Having said that, it appears the rest of 2016 and most of 2017 will be a time where capacity will not be an issue other than possible spikes due to weather related issues.

What should we do?

The message is still the same as it’s been. It is not a time to “hold the carriers heads under water” for ridiculous low rates. This is short term thinking and will come back to hurt your bottom line in the long run. However, if you haven’t already, you do need to take this time to assess your transportation program, evaluate your carriers, and continue to build strong relationships. Work with the carriers for fair rates given the state of current affairs but know a serious capacity issue will be coming and those that live off of spot rates rather than contracted rates will pay a very high price.

As a side note regarding the attached ATA tonnage chart: I prefer to put more weight on the NonSeasonally Adjusted numbers because that is the actual tonnage shipped. In addition, using trailing averages and reviewing the rate of change takes the seasonality out of the report.

I’m sending this to you because many organizations have found the ATA Tonnage Chart to be a leading indicator for their business and help them in their planning process. Overlay your organization’s 1 month, 3 month, and 12 month revenue trailing averages over these tonnage results to see if it can be a leading indicator to aid in your planning. I would be happy to assist you if interested.

Scott McDevitt, President of Translogistics
scottm@tli.email