Thursday, November 3, 2011

How the Global Economy Can Affect Trucking Capacity

The Global Economy Directly Affects Trucking Capacity

It's safe to assume that most transportation managers have felt the "sting" of a tightening truck capacity in the full truckload world. Flatbeds have been hard to find - rates have been increasing. Vans have also tightened and rates have increased.

Bottom line - if you want to attract a truck, it's probably going to cost you more than it did a year ago.

So what is driving the demand for trucks? Let's start with manufacturing and see what is happening.

Even though the global economy is playing a more critical role than ever before, such as the deficit crisis in Greece, freight demand has continued to be brisk, due to a bounce back of manufacturing activity.

According to data by the National Association of Credit Management (NACM), manufacturing increased in September from a dissapointing showing in August. The Credit Managers’ Index (CMI) jumped from 57.2 to 58.9. This seems to indicate that the summer slowdown appears to be lifting.

“The anecdotal evidence is that demand for new machinery is starting to pick up steam,” noted Chris Kuehl, NACM’s economist. “Many of the bigger trade shows in the manufacturing sector are reporting much larger attendance numbers than last year and those that are coming to these shows are far more interested in buying than before.”

That trend is reinforced by the CMI numbers, he added. “There is abundant evidence that business activity is ramping up again from the drops in August, and it is looking like much of the summer slowdown was prompted by all the political infighting,” Kuehl said.

Kuehl stated that the manufacturing activity isn't necessarily enough to indicate the manufacturing crisis is over, but that the manufacturing side of the economy is playing a big role in the freight markets.

"It has been noted elsewhere that outbound container traffic is about 8 points higher than this time last year, indicating that the export sector is still performing well in many categories,” he said.

According to a recent article in Fleet Owner, "the key “poker piece” for trucking in all of this is that capacity still remains well short of freight demand, Kenny Vieth, president and senior analyst at ACT Research Co., told Fleet Owner. “As long as freight volumes exceed capacity, then trucking companies can still achieve a reasonable profit,” he said. “Though we’ve changed our forecast, with freight demand now expected to plateau rather than accelerate into 2012, that plateau will still produce enough freight to exceed capacity. That means trucker profits should still remain up.”

For example, it has been reported that the number of trucks operated by the truckload industry is still down about 12% from the height in late 2006, yet tonnage levels are about the same as in late 2006; thus capacity remains tight.

According to Vieth, Greece still remains a wild card. The impact upon the world economy when Greece defaults could have a substantial impact on not just the eoncomy worlwide, but that also means that trucking capacity could be affected - just not sure how just yet.


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