The Fate of Freight and Fuel
Truckstop and travel plaza operators and the trucking companies they
serve have both been feeling the pressures of a down economy and high
fuel prices.
ATA’s seasonally adjusted for-hire truck tonnage index fell 3.3
percent in March, its lowest level since November 2007. Additionally,
tonnage contracted 0.2 percent compared with March 2007, marking the
first year-over-year decrease in the index since October 2007.
ATA Chief Economist Bob Costello told Stop Watch, “It is a
recession for trucking.” He said trucking’s slowdown has
been unique because it isn’t following typical patterns. “It
is usually very consecutive. It is negative, stays negative and then
comes out. This is going in and coming out,” he added.
However, Costello did remain optimistic. “I think you’ll
see a modest improvement through the rest of the year,” he said.
“It may not be consistent improvement, but the trend will be to
improvement.”
In order to cope with the down economy, Costello said trucking
companies are working to secure business and trying to keep their loads
as close as possible. “They’re just like any business,
they’re trying to drum up business,” Costello said.
Capacity in the trucking industry has been loose, but Costello said
it is coming closer into balance with demand. “There was a pre-buy
of trucks in 2006 and there were softer freight levels,” he said.
Part of the reason supply and demand is getting back in synch is that
the number of fleets is shrinking. “In the first quarter of 2008
you had 935 fleets go out of business.” Each of those fleets had a
minimum of five trucks.
“Those fleets that are surviving are shrinking because of
freight volumes,” Costello said. Part of the reduction in freight
volumes can be attributed to package sizes, which are also decreasing.
“I think that is the bigger issue,” he said.
“A few years ago it was about the products shrinking. Now not
only are the products shrinking, we’re shrinking the
packaging,” he said. “In a nutshell, even if the number of
loads in the dry van area stay flat, it might be that there really was
an increase in the economy, but things are getting smaller, including
packaging.”
Reducing packaging allows companies to save money on materials and on
transportation. Costello recently talked with a cereal
manufacturer who said they would be reducing the amount of empty space
within the box while still providing the same amount of cereal.
“Now they’re making concentrated loads of detergent, so
while you get the same number of loads the containers are
smaller.”
ATA’s truck tonnage figures had increased in the months leading
up to March and many experts were optimistic that the economy would
improve quickly. “Truck tonnage often leads to both recoveries and
recessions, and the latest contraction suggests the economy and trucking
are not out of the woods yet,” Costello said.
The average price of diesel and gas continued to increase and diesel
hit a new record high the week of May 12 of $4.331 cents per gallon.
That is $1.558 higher than a year ago. Gasoline also hit an all-time
high of $3.722 per gallon for the week. Pricing trends in the fuel
market, much like tonnage trends in the trucking industry, aren’t
following their traditional patterns.
According to the Department of Energy’s Energy Information
Administration, gasoline and diesel fuel prices have traditionally
followed set seasonal patterns from year to year, but this year the
traditional seasonal pattern does not appear to be holding. In spring
and summer, the peak driving season, gasoline sells at a premium to
diesel fuel. However, diesel fuel prices rose at a quicker pace than
gasoline through the late winter and spring. The EIA’s latest data
shows diesel fuel running about 60 cents more than gasoline per
gallon.
EIA’s short-term energy outlook is projecting that diesel fuel
will continue to sell at a higher price than gasoline through the
summer, although the price differential between the two fuels is
expected to narrow.
There are several factors in both gasoline and distillate that are
contributing to the current and projected pricing pattern. Weakness in
the U.S. economy has led to
softening gasoline demand. While gasoline prices have increased due to
surging crude oil prices, EIA said they have not risen as high as they
would have if year-on-year gasoline demand growth was unfolding at
normal rates.
Demand for distillates in Europe, Asia and the Middle East has continued to grow at a fast pace.
In Europe, financial incentives continue to promote the transition from
gasoline-powered to diesel-powered cars and light trucks, while a
growing economy has lifted transportation sector consumption overall.
Additionally, emissions standards for diesel fuel continue to tighten
across Europe, adding to supply
tightness as European refineries catch up to new specifications.
There is no doubt that high fuel prices are taking a toll on the
nation. “Surging diesel and gasoline prices are weighing heavily
on consumers, and since trucks haul virtually all consumer goods at some
point in the supply chain, the industry is going to be significantly
impacted both directly through higher diesel prices and indirectly
through lower freight volumes,” Costello said.
The outcry from the public has gotten legislators’ attention.
Congress recently voted to halt deliveries to the Strategic Petroleum
Reserve. In addition, the Farm Bill, which was recently approved by the
Senate and House, included NATSO-supported language expanding oversight
on energy futures trading on electronic exchanges. Those exchanges are
not subjected to the same requirements as physical exchanges such as the
NYMEX by the Commodities Futures Trading Commission (CFTC). This lack of
oversight results in market manipulation, contributing to price
volatility and driving higher crude oil prices. Both measures, once
implemented, should help drive lower fuel prices.
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