Sizing Up The Economy
By Ford Boswell S ince December 2007, the U.S. economy has sunk to levels not seen in a genera-tion. The downturn has stressed all busi-ness sectors, forced layoffs, bankruptcies, clo-sures and more. But what's different about the current reces-sion is that it has been accompanied by a crisis in financial markets. Likewise, excesses in housing exposed problems in the broader economy that caused this downturn to be much worse than it probably would have been otherwise. What this has meant for trucking compa-nies is that freight levels have dropped signifi-cantly. And for some time now, there have been continual drops in freight volumes, forc-ing weaker companies to shutdown opera-tions; and the ones left to layoff drivers and office staff, park power units, and scramble for what little freight there is (regardless of rates) just to keep their businesses rolling. According to Avondale Partners, a leading independent investment banking firm that fol-lows market trends, data and investment opportunities, in 2008 more than 3,000 trucking firms with five or more trucks ceased operations. For the first quarter of this year, nearly 500 were forced out of business. In his group's tonnage report for July 2009 (released late August), American Trucking President Bob Costello said that freight vol-umes may have finally hit bottom, but will probably remain unstable through the end of the year and even then, he says, a full recov-ery isn't expected for at least another year. The Numbers According to National ATA, advance sea-sonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.1 percent in July. In June, SA tonnage fell 2.4 percent. July's gain, which raised the SA index to 101.9 (2000=100), was-n't large enough to completely offset the reduction in the previous month. The not seasonally adjusted (NSA) index, which represents the change in tonnage actual-ly hauled by fleets before any seasonal ad-justment, equaled 106.3 in July, down 0.9 per-cent from June. (NSA) index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 107.3 in June, up 5.2 percent from May. Compared with July 2008, SA tonnage fell 10.4 percent, which was the best year-over-year showing since February 2009. June's 13.6 percent contraction was the largest year-over-year decrease of the current cycle. Costello said that truck tonnage will contin-ue to be choppy in the months ahead, but that is not necessarily a bad thing. It is not unusu-al for an economic indicator to become While Costello is optimistic that the worst is behind us, he says he doesn't see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consis-tently. Still, even small gains are better than the February 2008 through April 2009 cumu-lative tonnage reduction of 15.5 percent, Costello stated in his report. According to him, consumers are still fac-ing too many headwinds, including employ-ment losses, tight credit, and falling home val-ues, to name a few, that will make it very diffi-cult for household spending to jump in the near term. He also noted that inventories, relative to sales, are still too high in much of the supply chain, especially in the manufacturing and wholesale industries. As a result, this is likely to be the first time in memory that truck ton-nage doesn't lead the macro economy out of a recession. Today, many new product orders can be fulfilled with current inventories, not new pro-duction, thus suppressing truck tonnage, he says, adding that U.S. manufacturing capacity has dropped 16.4 percent since 2007, and that manufacturer operating capacity is at an all-time low of 64 percent. Local Conditions In talking to several Alabama fleet operators Are We There, Yet? While the U.S. economy is showing signs of reaching bottom, industry experts say it may be a while longer before trucking experiences a significant recovery. ATA_3Q09_revd.qxp 9/15/09 02:51 PM Page 4