Economic slowdown slams brakes on trucking sector

Economic slowdown slams brakes on trucking sector

A sudden, dramatic drop in freight demand has sucked the air out of a trucking sector pumped up by several years of growth.

"For the trucking industry, the first half of this year is likely to be the toughest environment we have seen since the last recession," Bob Costello, chief economist and vice president of the American Trucking Associations, said in a telephone interview Wednesday.

That's bad news for the rest of the economy, for which trucking is considered a bellwether.

"Trucking sees slowdowns and recovery first," Costello said. "I do anticipate that we will start to recover before the general economy."

The second half of 2007 looks better for trucking, he said.

"The general consensus is that 2008 will be a better time for the economy, and I would expect trucking to improve before that," he said.

November was the single worst month for for-hire truck tonnage since the last recession, according to the ATA's index. The ATA reported the truck-tonnage index dropped 3.6 percent in November from October and 8.8 percent compared to the same month a year earlier.

The index, which is seasonally adjusted, also dropped 1.8 percent in October from September and 4 percent compared to October 2005.

December statistics were not available.

Results indicate the economic slowdown is in full gear, Costello said.

"January," he said, "we're hearing that it's pretty tough."

Jim Hill at Omaha-based Merit Transportation Co. said the pace of what he termed one of the slowest fourth quarters he has seen in more than 20 years in the trucking business has continued into January. Although he remains optimistic about Merit's corner of the trucking world -- refrigerated transportation -- Hill said consumer demand is off.

"Shippers kept their inventories very thin. We haven't seen much change," he said.

Merit delayed by a year the $6 million purchase of 40 tractors and 40 trailers from fall 2006 when demand suddenly deflated.

"It came up suddenly. I don't think that we were forecasting the volume drop off that we experienced," Hill said.

Early in October, "Our load count went down and our empty miles went up," and Hill knew trucking's road was getting rougher.

"If gasoline had stayed at three dollars a gallon, it would have been worse. Consumers, if they're paying three dollars for gasoline, there's not a lot left over for Christmas. That (the decline in gas prices) kept it from falling off even further," Hill said.

The factors behind the slowdown are varied, Costello said. "It's really broad-based."

Slowdowns in housing and auto markets are easy targets, "but it's more than that," he said.

The portion of the gross national product made up of goods, rather than services, is projected to grow at a slower 1.6 percent rate than the overall economy's 2.3 percent rate, he said.

"We don't haul services. We get more bang for your buck from the goods side of the economy," he said.

A persistent driver shortage kept trucking companies from expanding further during the good times, Costello said.

"You would have expected companies to add unbelievable numbers of trucks, but they couldn't put drivers in them. The driver shortage continues to be an issue; it has become a constant issue with our industry. It's a constant problem, even in times like this."

With the driver shortage limiting how much firms can transport, a quick change in demand could quickly eat up any excess capacity.

"Once this thing turns around, I expect capacity's going to get tight pretty quick," Costello said.

Tonn Ostergard, president and chief executive of Crete Carrier Corp., said the transportation industry has changed greatly since 2000, when trucking first felt the effects of the last recession. Comparisons are difficult because circumstances are different, he said.

Shippers have changed the way they manage transportation, maintaining thinner inventories and building distribution centers closer to their customers for overnight restocking.

"We don't see the cycles that we used to see," he said. "They are much more proactive about managing their supply chain. They continually improve on things -- their technology, their distribution patterns."

More shippers also are responding to fuel prices by moving freight to intermodal rail, he said.

Ostergard said the fourth quarter was below the company's expectations, but he said he remained hopeful for a stronger first half of '07.

Lincoln-based Crete Carrier is one of the nation's largest privately held trucking companies. Ostergard declined to release revenue figures.

"The first 11 days of the new year aren't particularly rebounding, but January is never going to be as solid as other months. By some comparative measurements, January has been just a little below what we would have expected," he said.

The company didn't make major changes in the fourth quarter.

"That's what separates well-managed companies from the rest of the pack," he said. "You work a little harder and manage the business a little better. We're working closer with our customers and doing everything we can to be as efficient as possible."

At Merit, Hill sees opportunity in the refrigerated segment, and the private company is projected to grow again in 2007. The company, which was founded in 1999, limited its growth in 2006.

Merit recorded $50 million in revenue in 2006 and is projecting $70 million in 2007 revenue, Hill said. He declined to give profit figures.

One advantage is that ConAgra Foods, one of Merit's major customers, has realigned some shipping practices, Hill said, and Merit has increased its ConAgra business.

"If there's a strong segment in our industry, refrigerated is probably the strongest, and we're planning on taking advantage of that," he said. "People will eat. The frozen prepared-food market has stayed strong. That's a lot of the products we haul."