Tuesday, May 19, 2009

As Trucking Goes, So Goes the Economy

As trucking goes, so goes the economy
Roads less active during downturn
By Samantha Bomkamp, Associated Press
Sunday, May 17, 2009

NEW YORK -- Looking for signs of economic recovery? Try counting the number of trucks on the road.

Trucks carry almost all the manufactured and retail goods in the country -- from refrigerators to lumber, detergents to toys. Many economists gauge how fast assembly lines are running, and how much consumers are buying, by the volume of goods hauled by trucks. But the most recent earnings reports show trucks are not carrying enough yet to indicate recovery is near.

Slow consumer spending and stalled manufacturing activity took its toll on truckers in the first three months of the year. Nearly all major trucking companies reported lower first-quarter revenue and falling profits as the recession continued and shipping demand slid. Many cut back their fleets because of soft demand. Werner Enterprises Inc., for example, said it trimmed an additional 4 percent of its fleet of over 8,000 trucks in the first quarter. Many companies said more cuts will come.

In the first quarter of 2009, about 480 trucking companies went under. That's less than 1 percent of the nation's total freight capacity, which still leaves too many trucks competing for fewer shipments, according to analyst Donald Broughton of investment bank Avondale Partners. More than 3,000 trucking companies went out of business last year -- taking seven of every 100 trucks off the road.

Broughton said that more trucking companies will inevitably fail if the economy remains weak. But the pace of closures needs to speed up, he said, to allow other trucking companies to get a bigger slice of shipments and to raise prices again.

Analysts think that the number of trucks on U.S. highways will continue to slide until supply is more aligned with demand. When the trucking business starts to pick up again, they say, other economic factors -- from the employment rate to the gross domestic product -- will eventually follow.

Tavio Headley, an economist with the American Trucking Associations, believes that trucking industry business will pick up as early as next quarter, and the broader economy will show some minor improvements beginning in the last three months of the year. That is slightly earlier than previous estimates by the ATA, but Headley emphasizes that the economy will probably stay weak for some time.

"We do expect the economy to continue to contract, but at a slower pace over the next few quarters," he said. "And the reason we're not optimistic? A huge reduction in business investment and the housing market continues to be a huge drag on the overall economy."
Some data may indicate the nation's economic tailspin is beginning to level off.
The Institute for Supply Management, a trade group of purchasing executives, said earlier this month that manufacturing activity contracted at a slower-than-expected pace in April, as new orders to factories rose.

Less encouraging, the government also said that the nation's gross domestic product contracted at an annual rate of 6.1 percent during the first three months of the year. But the GDP numbers also showed a rise in consumer spending and a decline in inventories, which suggests manufacturers and retailers may have to increase new orders soon.
But "soon" doesn't seem soon enough for the trucking industry, which is anxiously waiting for calls from manufacturers and retailers who need deliveries. The ATA's Headley said that although inventories are falling, sales are dropping at an even steeper rate.

Trucking companies usually see shipments increase in number and weight three months to a year before the broader economy picks up.

In the recession in 2001, freight shipments improved a full year before the broader economy.
But there is no sign of that yet in the current recession.


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