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Transportation News Bulletins - LTL and TL

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June Truck Tonnage Drops 13.6%
Monday, 03 August 2009 00:00

American Trucking Associations’ tonnage index declined 13.6% in June from year-ago levels, the biggest such decline since early 1996.

Tonnage also fell 2.4% in June from its May level, which had improved from a dismal performance in April and prompted comments that the bottom of the freight recession might have been reached. Instead, the seasonally adjusted index for June fell at the highest rate since February 1996 to 99.8 from 102.3 in May and was barely above the low of 99.2 posted in April.

Tonnage now has declined on a year-over-year basis for nine consecutive months, beginning in October. And as the economic mainstay that carries 70% of U.S. freight, trucking continued to be buffeted last week by mixed economic reports.

On the plus side, durable goods orders other than transportation equipment rose 1.1%, but fell 2.5% when orders for airplanes and cars were included. Also, consumer confidence fell 2.7 percentage points in July from June levels, while new home sales rose by 8% and prices of new and existing homes stabilized.

“There is nothing to suggest the economy is going to take off anytime soon,” said Bob Costello, chief economist for ATA. “Things haven’t changed much from month to month in the economy. We are bouncing along the bottom.”

“We are going to bounce around for a while,” Costello said, adding that he doesn’t expect the gross domestic product to reach a long-term growth rate of 3% until late 2010.

Investment bank Morgan Stanley’s seasonally adjusted index of dry van truckload volumes also lacked hoped-for signs of a budding recovery.

“After peaking in early June, our index has trended downward modestly on an absolute basis and remains at all-time lows for this time of year,” Morgan analyst William Greene wrote in a July 27 report. The index was begun in 1995.

Fleet executives also highlighted the continuing market weakness, but some of them sounded positive notes.

“Second-quarter 2009 freight comparisons were well below volumes during the same period in 2008, in part since June 2008 was the strongest freight month for the company during 2008,” Werner Enterprises said in a July 20 statement. “Management is cautiously optimistic that freight is bottoming, but it remains difficult thus far in July 2009.”

While noting the extreme freight declines that accelerated in the second half of 2008, Arkansas Best Corp. CEO Robert Davidson said that in July, “year-over-year tonnage declines were somewhat lower than we saw in the first half” of the year.

“We’re seeing modest improvements,” Davidson said during a July 23 conference call. “However, we’re cautious interpreting this potential stabilization of business levels.”

On a seasonally unadjusted basis, the index number of 107.3 followed the typical month-to-month pattern, rising 5.2% from May to June.

A key factor to watch in the months ahead is the level of U.S. business inventories, Costello said.

He noted that manufacturers and retailers alike have slashed their inventories, but economic demand has fallen even faster, a combination that has forced freight into its current trough.

“This is likely to be the first time in memory that truck tonnage doesn’t lead the macro economy out of a recession,” Costello said. “Today, many new product orders can be fulfilled with current inventories, not new production, thus suppressing truck tonnage.”

“There is too much inventory out there, certainly at the manufacturing level and certainly at the wholesale level,” he added. “Retailers aren’t quite as bad, because they are requiring manufacturers and wholesalers to hold the inventory.”

Robert W. Baird analyst Jon Langenfeld had a different view, because inventories have been depleted to a level not seen in two decades.

That situation sets the stage for needed inventory replenishments that will stimulate demand for trucking service, Langenfeld said in a July 27 report. The potential pickup, coupled with continuing reductions in supply through bankruptcies and fleet downsizing, are bringing supply and demand for trucking more into balance, he said.

“Though inventory liquidation is still ongoing, we believe the industry has moved beyond the peak depletion rate for this cycle, which further supports our view that demand trends will not worsen,” he said.

Like Costello, Langenfeld said he believes underlying economic demand will be weak through the first half of next year.

The weakness in freight markets continued to reverberate throughout the industry, multiple reports showed.

Earnings results for Paccar Inc. and Daimler AG’s truck unit were announced last week. Paccar, the U.S.- based maker of Peterbilt and Kenworth tractors, reported profits fell 92% below last year, to $26 million. German vehicle manufacturer Daimler said its trucking unit reported an operating loss of 508 million euros, or $692.4 million, for the second quarter including one-time charges, compared with a 608 million euro profit last year. Cummins earnings also declined, dropping 81% from its record second-quarter profit of $293 million last year.

A report from consulting firm FTR Associates gave little encouragement to truck manufacturers, whose sales are at 25-year lows. FTR President Eric Starks reduced his forecast for 2010 tractor sales by 12%, citing the expected slow freight recovery.

ACT Research, which forecasts trailer market trends, said trailer orders declined in June after showing improvement earlier in the quarter.

Transport Topics, 8/3/2009

Freight Index Slips 0.5 Percent
Monday, 03 August 2009 00:00

But year-over-year 15.3 percent drop in Cass index is best in 11 months

A closely watched index of industrial shipping in the United States fell back slightly in July from the month before, Cass Information Systems announced Monday, amid growing signs that the year-long decline in freight shipping has bottomed out.

The Cass Freight Index for shipments fell 0.5 percent on a month-to-month basis, the first decline after two straight months of gains.

But July's 15.3 percent decline against the same month a year ago was the slimmest year-over-over decline Cass has registered since August 2008.

The Cass index for freight expenditures also signaled industrial shippers are maintaining their shipment activity, albeit at low levels.

The spending index remained steady, growing just 0.1 percent in July from June. On a year-over-year basis, the index declined 28.6 percent from the same month last year, a period when fuel prices were at historic highs.

Journal of Commerce, 8/3/2009

Diesel, Gas Prices Increase
Monday, 03 August 2009 00:00

The average per-gallon price of both diesel fuel and gasoline rose again last week, the Department of Energy reported Monday.

The average price of diesel fuel gained 2.2 cents to $2.55 a gallon, the Department of Energy said Monday. This was diesel’s second price increase in as many weeks.

The increase was led by a 4.3-cent jump in California to $2.763. DOE breaks out that state as a subset of its western region, where diesel rose 2.6 cents to $2.643.

The Rocky Mountain region was the only area where diesel prices fell, sliding 0.3 cent to $2.537.

The increase left diesel prices $1.952 below the same week last year.

Gasoline prices rose 5.4 cents last week to $2.557 a gallon, also a second straight weekly gain.

Both diesel and gas had fallen for four straight weeks prior to the upturn two weeks ago.

Monday’s gas price is $1.3232 below same week last year.

Light & Medium Truck, 8/3/2009

Rule Won’t Require Overhaul of Braking Systems, Experts Say
Monday, 03 August 2009 00:00

The National Highway Traffic Safety Administration’s decision to cut the maximum allowed stopping distance for large trucks by 30% will increase truck buyers’ costs somewhat, but will not force a widespread shift to new technology such as air disc brakes, industry groups and manufacturers said.

The new stopping distance rule, released by NHTSA on July 24, would require a loaded Class 8 truck travelling 60 miles per hour to stop within 250 feet, a sharp reduction from the current limit of 355 feet.

The rule applies to new three-axle tractors after Aug. 1, 2011, and to two-axle tractors by Aug. 1, 2013.

Adapting to the new rule “should be pretty smooth because the drum brake equipment has been in use for quite a few years now,” said Jim Tipka, vice president of engineering for American Trucking Associations.

When NHTSA first proposed the rule in 2005, the agency said it aimed to cut stopping distances by 20% to 30%, but it wanted brake manufacturers to be able to meet the standard with either conventional drum or air disc brakes.

Brake manufacturers have said that in most applications, the shorter stopping distance can be met using larger drum brakes.

Tim Kraus, executive director of the Heavy Duty Manufacturers Association, described the final rule as “the result of a lot of back and forth from a technical standpoint,” in part so the agency “can’t be accused of favoring any one particular product” over another.

Walt Frankiewicz, president of Bendix Spicer Foundation Brakes, told Transport Topics that now that the long-awaited rule has been published, “the industry can get on with its various options” to meet the new standard.

Frankiewicz said the company was pleased “to see that NHTSA has taken a very aggressive stance on stopping distance improvement . . . we’ve always supported the 30% reduction.”

In a statement, Joe Plomin, vice president of ArvinMeritor’s truck division, said that it was “a real benefit that truck operators are able to meet their stopping needs and the new federal stopping distance requirements without having to make significant changes to their drum brake specifications or service practices.”

ArvinMeritor’s “optimized drum brakes will meet the full compliance timeline, and we will continue to work with our OEM customers to make this new regulation transition seamless,” the company said.

Frankiewicz said Bendix Spicer has for some time projected greater use of disc brakes, and that the rule could “certainly drive an uptick in [disc brake sales] down the road.”

“In general,” he said, disc brake makers will “see a slightly higher take rate than prior to the advent of the rule.”

Tipka said that some truck configurations may shift from drum brakes to disc brakes, but that most fleets would continue to use the more familiar technology.

“I believe that the 6×4 tractor users will continue to use drum brakes, only because it is a brake that all the mechanics are familiar with,” he said. “I think we’re going to see disc brakes probably on the front end of 4×2 tractors because those seem to be a place where you really want more side-to-side stability.”

Steve Bell, air disc brake engineering manager with Bendix Spicer, said that the company believes “that we have solutions for all cases at this point.

“The challenge in front of us right now is taking very good technical solutions and making them affordable technical solutions,” Bell said.

In its rule, NHTSA said that using larger drum brakes to meet the new standard would cost $211 per vehicle, or $27 million across the industry.

However, the cost to the industry if disc brakes were used universally to meet the standard would be $1,475 per truck, or $192 million overall.

In the most likely scenario suggested by NHTSA, a combination of disc and drum brakes, the industry’s cost would be $54 million, or $413 per truck.

Transport Topics, 8/3/2009

Too Many Trucks Too Little Freight
Monday, 03 August 2009 00:00

The economic recession is opening new cracks in the road for the trucking industry—and thousands of tractors and trailers are falling through.

As they roll into the second half of 2009, trucking companies are shedding excess capacity any way they can—selling, parking or scrapping trucks and trailers. Many smaller companies are simply shutting down, dropping equipment into an already glutted used truck and trailer market, pushing bargain-basement prices even lower and making it more difficult for other companies to sell their vehicles.

And trucking companies are still towing too many empty trailers, with too many trucks chasing too little freight at prices that are too low, many say, to sustain their businesses over the long haul. That, even though many major truckload carriers started parking trucks at a more rapid pace in the second quarter, bringing to 760,000 the number of usable tractors that are idle in a domestic fleet of more than 3.1 million, according to FTR Associates, an Indiana-based research and consulting firm. Because the industry typically has up to 300,000 trucks ready for service but parked as a buffer in operations, FTR President Eric Starks said, that means trucking companies have pulled some 450,000 trucks from the road as excess equipment in a downturn that began for the trucking industry in late 2006.

About 4.8 percent of the nation’s active fleet was idled in the first half of 2009, Starks said, the first time in the last three recessions the over-all truck fleet in the United States has declined. But the moves to idle trucks have not come as quickly as demand has dropped, sending rates down sharply. FTR estimates rates for publicly traded carriers declined 3 to 4 percent in the second quarter from the first quarter. “We believe it’s closer to 10 to 15 percent down for some people.” Stacks said. “Shippers are pushing back pretty hard on the rates, which is what you would expect them to do when there is excess capacity.” 

Although some leading economic indicators finally point toward a recovery, it’s hard to see it from the seat of a truck cab. “There’s no visible catalyst in the marketplace to change where we’re at right now.” said Max Fuller. Co-chairman of U. S. Xpress Enterprises, a $1.8 billion truckload operator in Chattanooga. Tenn. We’re assuming the world’s not going to change a lot in the next six to nine months.”

“There’s still a lot of capacity, and on a daily basis we have to renegotiate rates with customers to retain their business.” said Wayne Spain, chief operating officer at Averitt Express, a $970 million less-thantruckload and truckload operator in Cookeville. Tenn. “Some people are aggressively shrinking their fleets, but it really isn’t enough.”

Some companies are finally reporting slight month-to-month increases in freight demand, inspiring hope that this year’s peak shipping season won’t resemble a sinkhole. But the American Trucking Associations’ Freight Tonnage Index in June fell 13.6 percent from the year before, and 2.4 percent from May.

Gary Girotti, vice president of the transportation practice at Atlanta-based transportation consultant Chainalytics said the point is where capacity and demand reach some measure of balance may not come.

“We surveyed 65 of the largest truckload shippers in America—they account for about $12 billion in transportation spending—and their consensus was capacity will be in balance sometime around (next) June,” Girotti said. After that, as the economy heats up and freight demand rises, “capacity will be really tight by December 2010,” he said.

Until then, shippers will enjoy the lowest rates in decades for truckload and less-than-truckload service. “It’s still raining bid packages,” said Jeffrey Tucker, CEO of third-party truck brokerage and freight management firm Tucker Co. Worldwide. “Folks are still busy trying to lock in these low rates. It’s a regular occurrence.”

Truckload rates are so low in some cases that shippers are consolidating loads and switching from already low-priced LTL carriers to truckload operators.

“We are seeing an uptick in activity, revenue-generating activity,” Tucker said. “We’re months ahead of last year’s pace in finding and signing on new customers. But anytime you see a lot of change, whether it’s a surplus of capacity or a shortage, it helps us.”

The advantage enjoyed by non-asset companies in this market was clear in the second-quarter results of C.H. Robinson Worldwide, which saw its net profit rise 2 percent despite a 17 percent drop in revenue to $1.9 billion. Its brokered truck division, which handles truckload and LTL freight, saw a 5.6 percent improvement in net revenue despite a 5 percent decline in truckload freight volume.

Trucking companies are making operational changes, too, as they struggle to survive this recession that may set new standards for performance in the recovery.

“We’ve tried to rethink our whole business model from top to bottom to look for any waste,” Fuller said. First, “we’ve taken the business that we’re not making a margin on any more and cut that out. We’re not going to haul it on a loss,” he said.

U.S. Xpress also shut down facilities, laid off more than 600 workers and cut several hundred vehicles from the five trucking fleets it operates, he said.

Lowell, Ark.-based J.B. Hunt Transport Services, a $3.7 billion company in 2008, sliced 599 trucks from its truckload fleet and 429 units from its dedicated carriage division in the second quarter. The result was still a 9 percent decline in revenue per loaded mile, a rough estimate of the impact of pricing.

Werner Enterprises, a $1.9 billion carrier, cut its truckload fleet 10 percent year-over-year and reduced its length of haul 16 percent to rein in costs.

USA Truck, which had $519 million in revenue last year, cut its fleet 8.4 percent in the first half of the year, reducing it to 2,325 trucks. It also shortened its length of haul as it shifts its business away from long-haul and toward regional truckload freight. 

The trucking industry hasn’t lost this much capacity since the Teamsters union went on strike against major LTL carriers in 1994, Chainalytic’s Girotti said. “Truckload carriers are taking out capacity as quickly as they can,” he said. “There are a lot of small carriers that have exited the market”

“We have a tremendous amount of idle capacity from bankruptcies or trucks being parked,” said Lana Batts, a managing partner with Transport Capital Partners. She said 35 percent of the truckload carriers surveyed by her firm in the second quarter said they were parking trucks. That capacity maybe idle, but it’s ready to be put back in service when needed. “Very little of it will be scrapped or sold overseas’ she said.

FTR Associates estimated some 38,000 trucks were scrapped in the first half of 2009, but the pace actually has slowed from 22,000 trucks scrapped in the first three months of the year to 16,000 in the second quarter. “You’re probably not going to see much scrappage until commodity prices increase and you see more of an incentive for the owners to junk their trucks,” Starks said.

More than 3,000 trucking companies shut down last year, according to Avondale Partners. However, larger carriers picked up their freight without adding equipment, Girotti said.

That may explain why the slicing and dicing that reportedly eliminated 20 percent of the truckload industry’s capacity seems to have had so little effect in the marketplace.

“We’re not seeing any tightening up of capacity’ Tucker said. “You hear about the largest publicly traded or private companies cutting back on capacity, but this industry is just so big I don’t know that it has an impact on the smaller and midsize carriers.”

Some say larger carriers are playing chicken, waiting to see who would make the first, and deepest, cuts before reducing their own capacity.

“Most people haven’t been as aggressive as Hunt in taking capacity out,” said Scott Arves, president and CEO of Transport America, a truckload carrier and logistics company in Eagan, Mich. “Nobody wants to take capacity out at the same rate that freight’s down, which is something like 15 to 20 percent,” he said.

And no matter how fast or frantic the cutting, shipping demand is shrinking as fast if not faster than the number of trucks and trailers available to haul it. Most estimates place the drop in freight demand over the past year at 25 percent or higher and trucking executives aren’t expecting a turnaround in 2009.

“We really don’t see any significant changes in the second half of the year,” said Averitt’s Spain. “I just don’t see the business coming back. Business is not terrible, but it’s just not good’ he said. “We don’t see a lot of changes, and our customers tell us the same thing. Their customers aren’t making (purchasing) decisions"

In fact, trucking companies are making some of the same decisions to work through inventory that shippers are making. And if any transport operator can reduce capacity, it should be a truckload carrier. “It’s very easy—don’t order new trucks,” said Satish Jindel, a principal with Pittsburgh-based SJ Consulting. “Let the average age of your tractors go up.”

Ward’s Auto last month said heavy truck sales were down 33.4 percent year-over-year in the first half of 2009. FTR estimates production of Class 8 trucks this year will decline 47 percent from last year and said production next year, while improving, will remain 30 percent behind the 2008 levels.

Starks said companies idled 90,000 tractors in the first quarter and another 60,000 in the second quarter, even as they saw rates decline in the first half of the year and shippers use their market leverage to lock in lower rates in the second half of the year. “It will take a substantial improvement in freight demand to soak up the current significant fleet equipment surplus’ Starks said.

That may not happen until 2011, he estimates, and trucking companies then will start bringing the idled equipment into play.

“About two years out, there could be some pretty sizable rate increases,” U.S. Xpress’s Fuller said.

Journal of Commerce, 8/3/2009

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