Once-optimistic truckers struggle with “somewhat choppy” freight demand

This was supposed to be the best of times for trucking companies. Fully right-sized since the Great Recession pared some fleets’ capacity, trucking executives were hoping to ride optimism from a newly elected pro-business president to the promised land of profits and overflowing trucks.

It hasn’t quite turned out that way. Demand has been uneven. Seasonal uptick has been modest. And few trucking executives are expecting a robust “peak season” that traditionally started about now and ran past the Thanksgiving holiday.

“I’m not sure peak season even exists anymore,” Chuck Hammel, president of Pittsburgh-based Pitt Ohio, the nation’s 18th-largest LTL carrier, told LM. “The last four or five years we haven’t seen a real peak—only a mild bump. Because of the changing buying patterns, the distribution shift and the rise of e-commerce, I’m afraid peak season is a thing of the past.”

It’s not as if Pitt Ohio is doing anything wrong. Perennially on LM’s “Quest for Quality” list of top service companies as ranked by shippers, the Pittsburgh-based company is known as one of the innovators in the industry.

It’s simply that freight demand has not been as robust as executives expected in the wake of President Donald J. Trump’s surprising election victory last year.

Did you expect more freight demand by this time of the year? “Frankly yes I did. There was a lot of optimism around the administration change in Washington in hopes of a business friendly administration,” Pitt Ohio’s Hammel said. “But thus far they have been distracted with other problems. So that optimism has somewhat faded for now.”

The numbers are all over the place. ATA's truck tonnage fell for three straight months in the spring. But other indicators are more favorable. 

“We are finding the environment somewhat choppy,” Hammel said. “We are up in tonnage, revenue and shipments slightly (about 2-3%) There are plenty of opportunities for customized solutions but the sales cycle on those are lengthy. 

“There are also short term opportunities around companies disrupting supply chains like Amazon. I say short term because companies like Amazon are changing so quickly that it’s difficult for them to see the longer term as it related to their distribution pattern,” Hammel added.

After a lackluster spring, usually summer retail demand kicks in. While freight volumes and rates are rising modestly, more freight is being diverted through e-commerce channels. That’s to the chagrin of traditional truckload haulers, as online shopping and “free shipping” continue to grow. 
 
Some LTL carriers such as XPO, Pitt Ohio and others are cashing in on that demand. Recently, truckload giant Werner Enterprises opened a “last mile” division, hoping to land some of that e-commerce demand.

Some evidence for an overall freight buildup comes from the Cass Freight Index, a barometer of freight demand and expenditures. It rose 3.7 percent in April from March and 4 percent on a year-over-year. Spot market dry van truckloads also rose in May, before the Memorial Day holiday. The Cass Shipper Expenditures Index rose 3.1 percent from March and a 6 percent from a year ago, reflecting in part higher fuel surcharges.

The Cass Truckload Linehaul Index, which tracks rates, rose 1.3 percent from a year ago in April, its first positive reading in 14 months. That is good news for TL and intermodal providers, analysts said.

The Institute for Supply Management said its closely watched index of manufacturing activity rose to 54.9 in May, a tick above April’s level. Any level above 50 indicates expanded economic activity. The Institute for Supply Management points out that the non-manufacturing section grew for the 87th straight month.

But housing, a key sector for trucking, remained sluggish. Housing starts fell 2.6 percent in April.

“I have to admit that April’s contraction is a bit surprising, especially considering the anecdotal reports I’ve been hearing from fleets regarding freight levels,” ATA chief economist Bob Costello said in a statement. “It’s not necessarily that tonnage levels fell in April that is surprising, but the size of the decrease. One explanation is that housing starts fell substantially in April.”

In an optimistic note, America's small business owners are feeling fairly bullish about their companies right now. Most are eyeing revenue growth and many looking to add staff in the coming months. But when asked about the current health of the economy, small employers' views are markedly less rosy, a new survey shows.

The first MetLife and U.S. Chamber of Commerce Small Business Index—a new national quarterly survey of 1,000 small business owners—showed that 60 percent expect their company’s revenue to increase next year and 29 percent are planning to increase their headcount, compared to just 9 percent and 6 percent who expect to see those numbers decline, respectively. In addition, those planning to increase their investments in their companies next year outnumber those planning to pull back.

“Our index revealed that there is a huge potential for growth on Main Streets across the country,” Suzanne Clark, senior executive vice president at the U.S. Chamber, said in a statement. “Not only are small businesses looking to add employees, but they’re optimistic about growing their revenue and investing back in their companies.”