Trucking Economist Makes Encouraging Prediction as Rates and Volumes Rebound
Arlington, VA – A prominent economist is predicting the trucking industry may not be hampered as much by the COVID-19 national emergency as some other industries.
On Tuesday, Bob Costello, chief economist for the American Trucking Associations (ATA), gave his assessment of May’s advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index numbers which revealed only a 1% contraction after falling 10.3% in April.
“While tonnage fell in May, even though other economic indicators like retail sales and housing starts rose, I’m not overly concerned,” said Costello. “First, while down over 10 percent sequentially in April, truck tonnage did not fall as much as other economic indicators that month.”
Costello was quick to point out that “freight continues to improve” as more states and localities open back up for business after shutting down due to the coronavirus.
Despite the brutal few months, tonnage is only down 2.6% year-to-date, compared with the same period in 2019.
Given this data, Costello believes trucking could be well-positioned to rebound more quickly than most other sectors of the economy.
“While the overall economy will likely take more than a year to recover, assuming the pandemic doesn’t spike again, the trucking industry could recover back to pre-COVID levels before many other industries because it hasn’t fallen as much,” Costello said. “As retail sales improve and housing starts recover, that will help trucking.”
However, he did warn, “The risk for trucking is that the virus surges again and places start to shut back down again.”
ATA’s For-Hire Truck Tonnage Index is dominated by contract freight as opposed to spot market freight.
So, what about the spot market?
According to DAT, the spot market picked up significant momentum last week, with large increases in load-to-truck ratios for each major trailer type.
Specifically, van load-to-truck surged 23.5%, flatbed load-to-truck improved 14.2%, and reefer load-to-truck jumped 27.2%.
That pushed national averages for van ($1.77/mile) and reefer ($2.12/mile) rates above where they were before the coronavirus crisis in February, excluding fuel surcharges.
Is capacity expected to constrain rates in the short term outlook?
The industry is continuing to deal with the effects of overcapacity.
Tim Denoyer, ACT Research’s vice president and senior analyst, says that is likely to continue throughout this year.
On the positive side, ACT’s For-Hire Trucking Survey showed a significant rebalancing of supply and demand in May compared to April.
Aiding in the rebalancing is “shrinking Class 8 retail sales,” Denoyer says.
However, Denoyer assesses that “with sidelined drivers likely coming back, and lenders extending loans, it may be a while before the market really tightens.”