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Freight ‘choppy’ and economy in the category of ‘great OK,' ATA attendees told

Chief Economist and Vice President Bob Costello: Freight is “very choppy,” explaining that while tonnage is up about 5 percent for trucking, total truckloads are only up about 0.3 percent. (The Trucker: LYNDON FINNEY)

By CLIFF ABBOTT
The Trucker Staff

10/21/2013

ORLANDO, Fla. — Attendees were interested in more than the menu at the ATA luncheon, held at the Management Conference and Exhibition here. Trucking industry executives, members of the press and others looked to a panel comprising industry experts to predict economic and business conditions for the next year or so.

The panel featured American Trucking Associations Chief Economist and Vice President Bob Costello; Wells Fargo Managing Director and Senior Economist Mark Vitner; and ACT Research President and Senior Economist Kenny Vieth. The event, titled: “All Eyes on the Economy,” was hosted by Stuart Varney from the FOX Business Network.

After joking about his prediction of a Romney win in the 2012 Presidential election at last year’s MC&E, Varney turned to Costello for a summary of economic news and freight conditions. Costello said that freight is “very choppy,” explaining that while tonnage is up about 5 percent for trucking, total truckloads are only up about 0.3 percent.

The disparity is due to the economy, according to Costello. “The parts of the economy that are doing well produce heavy freight,” he explained. He cited the prevalence of fracking operations that utilize full truckloads of sand and water in the process. He also mentioned building activities and hauling of parts for auto assembly, including engines and transmissions.

Costello pointed out that tank freight has done very well in the past year or so, with flatbed tonnage increasing to a smaller degree and van freight only recently showing a small increase.

Costello also discussed the building trade and its impact on trucking. A mortgage rate spike, caused by actions of the Federal Reserve to maintain the country’s money supply, temporarily drove interest rates upward, according to Costello. The result, he said, was a decline in home sales and a reduction in housing starts that are picking up now that interest rates have come back down.

The weather also played a part in the slower building market. 2013 was the wettest summer since records have been kept for the southeast U.S., causing construction delays not normally seen during the building season.  

Mark Vitner cited household consumption to explain sluggish economic growth. “It’s ‘just OK,’” he quipped.

Vitner said that some segments of the economy are doing well, like sales of luxury automobiles and smaller discount stores like Dollar General. Unfortunately, those businesses typically serve people at the high and low ends of the income scale, he explained. “We need income growth in the lower-middle class consumer segment,” he continued.

Vitner predicted more of the same for 2014, at least in the first half. “There is still a lot wrong with the economy,” he said, adding that the 2.2 percent growth in domestic production of the past year would continue.

One reason, he explained, is that the upcoming 2013 holiday season will be shorter than last year’s, due to Thanksgiving falling on November 28. Last year, the holiday was celebrated on November 22, providing shoppers with six more spending days.

Kenny Vieth followed with a synopsis of new and used Class 8 truck sales. According to Vieth, tractor sales have gone “from the Great Recession to the “great OK,” echoing Vitner’s assessment of the economy in general.

According to Vieth, new Class 8 tractor sales are certainly better than they were in 2009 and 2010, but still down from the pre-recession boom years of 2006 and 2007.

He cited the increased average age of tractors on the road, explaining that owners are squeezing more miles than ever from equipment. The reason, he said, is uncertainty over freight volumes. Truckers and carriers are loath to spend for new equipment they aren’t sure they can keep rolling.

Used tractor prices, he pointed out, have been escalating as there have been fewer to choose from. He predicts, however, that ongoing fuel mileage improvements will result in older, lower-mpg units to become less attractive, predicting that many of them will leave the market in the coming months.

As older tractors with higher mileage totals lose their attractiveness to the U.S. market, sellers often look to other countries for markets where they have more value. While the Mexican market will absorb many of those used units, he explained, Nigeria will likely remain the number one destination for export of used U.S. tractors, as it has for the past five years.

Varney closed the event with his prediction that Obamacare will definitely have a huge impact on the 2014 elections, drawing a laugh from the crowd when he refused to specify what that impact would be.

The Trucker staff can be reached to comment on this article at editor@thetrucker.com.

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