Consistent with a cooling economy and more difficult prior-year comparisons, several trucking demand metrics are showing a slowing rate of growth, reports the BMO Capital Markets Freight Monitor. The Cass Freight Index was up 4.4% y/y in August (+9.8% YTD) but has moderated from the 13.8% high reported in March. The ATA Tonnage Index rose 4.0% y/y in July (5.3% YTD) but continues to soften since peaking at 7.6% in January.
To the extent the economy picks up in H2/11, BMO analysts expect gradual improvement in freight demand for trucking.
The inventory-to-sales ratio in the U.S. remains below its 10-year average as businesses are keeping a lid on inventories in order to manage for heightened economic uncertainty. However, in recent months the Canadian Manufacturing I/S ratio has started to trend up. If there is a recession, relatively lean inventory levels in the U.S. should provide some cushion for the U.S. trucking industry, especially compared to high inventory levels that were more prevalent heading into the previous recession. In Canada, the rising inventory levels would present more of a headwind, BMO reports.
The U.S. Federal Motor Carrier Safety Administration (FMCSA) has fully implemented Comprehensive Safety Analysis (CSA 2010), which is intended to increase safety enforcement. It is believed that CSA 2010 may remove as much as 10% of the driver base (unsafe drivers impact a carrier’s safety record, potentially triggering fines).
In addition, driver availability is expected to be further constrained by proposed amendments to the Hours-of-Service (HOS) regulations. The modified HOS rules are intended to impose greater restrictions to the duration and timing that drivers may operate commercial vehicles. Changes to HOS regulations are expected to be finalized and implemented by mid-2012.
In Q2/11, U.S. truckload companies reported low-to-mid single-digit pricing increases, as truckload rates continued to benefit from tighter industry capacity. As long as tonnage continues to post modest growth, BMO analysts expect industry conditions to favor carriers and anticipate pricing to edge higher. While less-than-truckload (LTL) businesses reported large yield gains last quarter, pricing remains below pre-recession levels.