FTR’s Trucking Conditions Index leaves room for improvement in coming months

A combination of market factors contributed to sustained level of market softness in the most recent edition of the Trucking Conditions Index from freight transportation forecasting firm FTR.

The TCI reflects tightening conditions for hauling capacity and is comprised of various metrics, including capacity, fuel, bankruptcies, cost of capital, and freight.

According to FTR, a TCI reading above zero represents an adequate trucking environment, with readings above ten indicating that volumes, prices, and margin are in a good range for carriers.

For March, the most recent month for which data is available, the TCI was 7.3, which is down slightly from February’s 7.4 and January’s 7.8.

The current TCI level, according to FTR, points to large declines in diesel prices ending, coupled with that it called a modest demand for truck services. But these factors could be of the short term variety, as FTR said a summer rebound could be en route paced by economic growth, stabilization of truck demand, and further capacity tightening, with the firm also noting it will closely monitoring manufacturing output data that was on the low end in April while still showing growth.

“Conditions for truckers and fleets remains quite positive despite the recent dip in the index,” said FTR Director of Transportation Analysis Jonathan Starks in a statement. “This dip followed a very strong increase in the TCI over the last half of 2014 as solid volumes, good rate gains, and falling diesel prices helped propel the December index to its first double-digit reading since early 2010. The recent data on the economy has been mixed with Q1 GDP coming in substantially weaker but sales and employment picking back up to start Q2. This recovery has been unusual in that Q1 GDP has generally been much weaker than the growth seen the rest of the year. This gives us optimism that the truck markets will not be significantly slowed, although it is likely that manufacturing output will be less strong in 2015. This will be especially true for exports of U.S. goods, as the dollar has risen over 20 percent in the last year and our goods are now more expensive and less competitive in global markets.”

Starks added that FTR is also watching sales and inventories data because, so far, the drop in fuel costs has not directly translated into large gains in consumer spending. And if consumers save that money, he said it is likely it could translate into another year of slow and steady economic growth.

“However, if production doesn’t slow to follow suit, then we will get an inventory glut that will have to be quickly worked down,” he added. “If they start spending, it could help fuel another surge in economic growth like we saw last year.”

Even with potential tailwinds lurking, many trucking industry stakeholders share Starks’ opinion that demand could get a boost in the coming months, which could prompt a return to steady volume growth. But more than anything else, they all agree that largely will be contingent on a return to steady consumer spending patterns.

BB&T Capital Markets analyst Thom Albrecht observed in a recent research note that the overall trucking market in 2015 could simply be viewed as average.

“2014 was such an epic year that comparisons are almost unfair,” wrote Albrecht. “Everything that could go wrong for shippers (or right for carriers) occurred. With freight returning to more normal seasonal patterns the spot market has been tame and may remain so much of the year. One key is that the spot market is at least consistent with seasonal patterns (exc. 2014), including being weak in January and February, seasonally stronger in March and softer in April. A cool, wet spring has delayed surge shipments in beverages and protein, but this is likely to strengthen in May. Investors remain scarred by the “great recession” and seemingly every data point leads to strong reactions.”