Despite a handful of easily-surmounted obstacles, the North American transportation industry should continue to recover throughout the summer.
Dips and bumps in tonnage levels no concern forUStrucking industry
After a rough early spring filled with spiking fuel prices and market uncertainty, it was no surprise that the American Trucking Association's seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 0.7 percent in April after gaining a revised 1.9 percent in March 2011. However, compared with April 2010, SA tonnage climbed 4.8 percent, signifying overall improvement in the economic recovery. ATA Chief Economist Bob Costello, for one, was not concerned with the slight month-on-month dip.
"Sincefreightvolumes are so volatile truck tonnage is unlikely to grow every month, even on a seasonally adjusted basis," Costello said. "I expect economic activity, and with it truckfreightlevels to grow at a moderate pace in the coming months and quarters."
Also helping the trucking industry was the downtick in fuel prices as May came to a close. "Lower fuel costs will helpfreightvolumes and motor carrier bottom lines going forward," Costello added. In fact, the ATA is not only optimistic about the trucking industry's short-term prospects, but throughout the rest of the decade as well. According to the ATA'sUSFreightTransportation Forecast published in late May, totalfreighttonnage is expected to grow by 24 percent by 2022, and revenue for thefreighttransportation industry is projected to rise 66 percent. Moreover, the ATA predicts trucking's share of that market will rise to 70 percent by 2022. In comparison, data show that trucking represented 67 percent of tonnage in 2010.
As for the truck driver shortage, which seemed to be easing compared to last year, new data suggest demand is still outpacing availability. According to the ATA's latest Trucking Activity Report, fleets were able to hire more drivers during the first quarter of this year, but the turnover rate for long-haul truck drivers was also up. The turnover figure, at an annualized rate of 75 percent in Q1 2011, is mostly attributed to drivers jumping from carrier to carrier, a strong indication of a tight driver market. "We hear nearly every day from fleets who cannot find enough drivers to meet demand," said Costello, and "with the economy continuing to recover from the Great Recession, the implementation of new regulations and the number of retirees outpacing the number of drivers entering the industry, I expect to see the turnover rate continue to rise."
Positive indicators boost the North American rail sector
According to the Association of American Railroads (AAR), containers--which transport steel-specific materials such asscrap--increased 7.5 percent year-over-year in May. The AAR attributed the intermodal traffic increases to growing international trade, large investments in infrastructure and equipment by railroad companies, highway congestion, and surging imports from "big box" retailers. However, availability is still reported as tight, with little to no flexibility infreightrates, despite the downtrend in fuel prices.
Fuel surcharges for most major railways will be 28 percent in July, a slight decrease from June's 28.5 percent. Looking at years past, July's surcharge is much higher than the 18.5 percent in July 2010 and the 10 percent in July 2009, but notably, it's down from the 32 percent rate in July 2008--when diesel fuel prices also shot past $4.00/gallon. That year, surcharges peaked at 35 percent in September, which was a trend many were worried about when fuel prices spiked this year--however, the relief in fuel prices seen in late May/early June indicates that the worst is probably over.
Other positive indicators in the rail sector include increased employment (theUSrail industry added 935 employees in May) and the continued strong investment from the private sector. In mid-June, AAR President and CEO Edward R. Hamberger testified at a Surface Transportation Board (STB) hearing, stating that the current rail regulatory framework encourages private investment--rather than relying on government funds--and thus should not be subject to more stringent regulations. According to Hamberger, private funding in the railroad sector totals approximately $20 billion, making it possible for rail rates to be down 51 percent since 1981. "The average shipper can move twice as muchfreightfor the same price as 30 years ago," Hamberger said.
However, some in the rail industry choose to remain cautious, especially when traffic gains such as carloads are not exactly robust. "Like other national indicators, rail traffic reflects a degree of uncertainty regarding the direction of the economy," said AAR Senior Vice President John T. Gray. "Railroads join everyone else in hoping current trends are just a bump in the road rather than a portent of things to come."
According to the AAR, total carloads of rail traffic volume for the first 24 weeks of the year on 13 reportingUS, Canadian and Mexican railroads were 9,092,676; up 2.8 percent from the same period in 2010. Containers and trailers were up 7.3 percent, while metallic ore shipments increased 11.8 percent, metal products improved by 7.4 percent, and iron and steelscrapincreased 1.6 percent.
Barge demand high despite spring flooding woes
Spring flooding has continued to be a problem for barge operators onUSrivers. The Mississippi River is still dangerously swollen, but while it remains open to barge traffic, a 261-mile stretch of the upper part of the Missouri River is closed to all navigation, sending barge operators scrambling for alternative means of transit. Barge rates have remained high, and sources tell SteelOrbis that rates will most likely climb over the course of the summer.
As for traffic on the Great Lakes, freighter tonnage increase 15.6 percent month-on-month in May, with dry bulk tonnage totaling 9.5 million net tons. However, compared to last year, total tonnage dropped by 3.4 percent, as didiron ore--reflecting a 3.7 percent decrease in May 2011 compared to May 2010. On the other hand, metallurgical coal tonnage stayed level year-on-year in May, totaling 2.1 million net tons, while aggregate and fluxstone for the construction and steel industries dipped 8 percent year-on-year.
However, in the context of cumulative shipments this year, total Great Lakes cargo shipped in the first five months of 2011 stands at 23.6 million net tons, an increase of 5 percent from the same period a year ago, whereasiron oreand coal have increased 6 percent and 10.3 percent, respectively.