(The following story by Betty Beard appeared on The Arizona Republic website on July 27.)
PHOENIX, Ariz. — The trucking and rail industries, whose freight volumes can function as a barometer of how well the economy is doing, are hauling more tonnage this year.
But industry officials stop short of saying that means an economic recovery is near or that the trucking and rail companies are doing well. They are both still struggling with high diesel prices and, in some cases, suffering the effects of the massive flooding last month in the Midwest.
Still, there are signs of hope.
Union Pacific Corp., the country’s largest railway company and operator of a line through the Phoenix area, last week reported a 19 percent jump in its previous quarterly earnings as well as increases in the past quarter in five of its six main $4.3 billion shipment areas.
Agricultural volumes, especially grains, were up 29 percent, compared with the same quarter a year earlier, said Donna Kush, a corporate spokeswoman in Omaha, Neb. Energy products such as coal and ethanol, rose 21 percent. Chemicals, industrial products and intermodal, or container shipments, also rose.
The only decrease was for auto and truck shipments, which fell 9 percent as consumers have been holding off on vehicles purchases, Kush said.
Kevin Knight, chairman and chief executive of Phoenix-based Knight Transportation, said products moved by his company’s 3,750 trucks have been below last year’s levels but improved every month this year to the point where June volumes finally equaled volumes moved in June 2007.
“The full impact is hitting the consumer, and so we think the worst of it was January,” he said. “But it’s still a challenging environment.”
Phoenix-based Swift Transportation Co. Inc. is larger than Knight but is now a private company and does not disclose financials.
Because the trucking industry handles about 70 percent of the goods shipped around the country, the American Trucking Association in Arlington, Va., says the industry is an especially good barometer of economic health.
The association regularly compiles a tonnage index that has shown seven consecutive months of year-over-year increases. The seasonally adjusted May index was 3.3 percent over a year earlier and also 0.5 percent higher than April, the first month-over-month jump since January.
But Tavio Headley, an economist with ATA, said that while that is a positive sign, the main reason this year’s numbers look good is because things were so dismal last year. It doesn’t mean 2008 is especially robust.
“Things were so bad last year it doesn’t take much to show a year-over-year improvement,” he said.
“We believe the tonnage volumes will probably stay volatile as the weakness in the housing market continues, if not worsens, and energy prices continue to set new records.”
Tom White, spokesman for the Association of American Railways in Washington, D.C., also said it is too early to draw conclusions from any improvements reported so far in the rail industry.
“It’s really very much of a mixed bag, and it’s very difficult to draw any conclusion at this point” he said.
In contrast to Union Pacific, Burlington Northern Santa Fe Corp. reported a 19 percent decline in net income in the past quarter compared with a year earlier largely because of environmental cleanups. Still, its profits were better than Wall Street analysts expected.
Both the trucking and rail industries are seeing decreased business from the slowdown in housing construction and increased business from manufacturing exports that result from the weaker dollar.
Union Pacific officials, for example, reported in an earnings conference that lumber volumes were down 25 percent and cement was down 11 percent. But grain shipments jumped 40 percent because of worldwide demand. They also are moving more coal to Asia.
Knight said his company has also noticed that exports are stronger than normal and that essentials are doing well.
“I would say that for the most part the daily consumables – you know, things that you and I get from the grocery store – are continuing to move at a normal pace,” he said. “But anything that you don’t have to have is where we are seeing things slow.”
The biggest problem both industries face is diesel prices, which rose in the quarter to record levels and are as much as 64 percent higher than a year earlier. Although companies can pass on a lot of that cost on to customers through surcharges, sometimes they have to wait until new contracts can be written and in some cases can’t do that until later this year.
At least 2,000 trucking fleets with five or more trucks went out of business last year, and 935 more went out of business in the first quarter of 2008 because of higher diesel prices, Headley said.
Knight believes that one reason trucking companies such as his are doing better is because high diesel prices have forced so many other haulers to close.
But Headley said the tonnage index the ATA compiles takes that into consideration .
“The positive year-over-year gains is a positive sign, but it is still too early to tell, especially with everything going on with energy prices,” he said.