OT -
Trucking rebound may signal same for U.S economy
By Jamie LaReau
NEW YORK, Aug 13 (Reuters) - The U.S. economy may be changing lanes and signaling it is leaving the economic slowdown behind as U.S. trucking companies report a slight increase in tonnage and declining demand bottoms out.
A drop in the price of fuel is helping the industry, along with the Federal Reserve's rate cuts, and many in the trucking sector are cautiously optimistic demand growth will resume more fully by early next year, industry insiders said.
``We have had several weeks recently that give us hope that we might be in the early stages of some economic recovery,'' said Stephen Bruffett, vice president and treasurer of trucking company Yellow Corp. (NasdaqNM:YELL - news), in a telephone interview with Reuters. ``We don't have enough days in a row where there's consistent growth in demand to draw a conclusion though.''
The transportation sector, especially the cyclical trucking industry, historically has been a gauge for the health of the U.S. economy because trucking is typically the first sector to see profits slide on weaker demand when economic activity slows, economists said. It's also the first sector to notice a return in demand growth when the economy is picking up.
Tonnage in the second quarter rose 1 percent industrywide from a year earlier, said Bob Castello, chief economist of the American Trucking Association, a Washington, D.C.-based think tank. That's the first year-over-year increase on a quarterly basis in five quarters, he said.
Castello said part of the increase might be due to a drop in competition after many trucking companies went out of business over the past year and a half, but also it indicates a broader economic recovery could be in motion by early next year, based on what he is seeing in the trucking sector.
SIGNS OF ECONOMIC IMPROVEMENT
The recent economic slowdown has been one of the more challenging periods for the trucking industry in the last 10 years, Bruffett said.
Yellow Corp.'s business volumes dropped between 10 percent to 15 percent over the past year, and it had to cut up to 10 percent of its 24,000 employee work force, he said.
But in the last half of the second quarter, the company started bringing some employees back to work, he said. Bruffett did not have specifics on how many employees were coming back or how demand was increasing, but he was confident the trucking sector had ``found the bottom'' in the economy.
``Although we're not convinced of economic recovery yet, we are seeing signs that are more favorable than they were late first quarter and early second quarter and any economic improvement, from this point, would be wind in our sales given the adjustment to our cost structure that we've already made,'' he said.
Shares of trucking companies have taken off since last year, when investors bet oil prices would fall and Fed interest rate cuts would spur the economy. Yellow Corp. shares have gained 52 percent since the end of September.
Shares in trucking rivals Knight Transportation Inc. (NasdaqNM:KNGT - news) have more than doubled and Roadway Express Inc. (NasdaqNM:ROAD - news) rose 74 percent. Shares of the broad-gauged Standard & Poor's 500 index have declined 16.9 percent over the period.
Knight also has seen indications the decline in demand was stabilizing toward the latter part of the second quarter, said Tim Kohl, chief financial officer, in an interview with Reuters.
Kohl said, however, that while demand and the amount of tonnage the trucking company carries are stronger now than in the beginning of the year, it's still slow relative to this time of year, when, historically, carriers find they're overbooked for the holiday shipping season.
``I wouldn't argue with it stabilizing,'' Kohl said. ``We're seeing container freight pickup on the West coast, but we're still uncertain about where the economy is going.''
Knight has told analysts it expects to see 10 percent to 15 percent revenue growth for the year, compared to past revenue growth of between 20 percent to 25 percent, Kohl said.
The company will continue to control costs, he said. For example, Knight has about 250 more trucks running this quarter compared to a year earlier, with only three additional drivers and it only plans to add 50 to 100 trucks to its fleet this year when it would normally double that in better economic times, he said. as part of normal renovation????
ENERGY COSTS KEY
Roadway Express said it had not seen any significant deterioration in its business volumes or any meaningful improvements. The company did not want to speculate further on any signs of economic recovery.
Cutting both interest rates and oil prices are great stimuli to the trucking industry because 73 percent of the value of goods in the U.S. economy moves on trucks, said Don Broughton, transportation analyst for brokerage firm AG Edwards & Sons.
Broughton said there is a direct correlation between a drop in energy costs and an increase in production that will trickle down into an eventual economic recovery.
``This week is not a recovery, next month we still won't know, six months from now, I'll bet my house ... that the tangible goods part of the economy will be showing some real signs of resurgence in the next two quarters,'' HE said.
Most trucking companies and economists do not expect fuel prices to continue to retract, however, and it is one of the trucking industry's biggest costs. |
