Inside the Numbers

Avery Untitled 1A new kind of recovery

At least for now, the trucking industry is going strong. A monthly survey of select trucking companies conducted by Randall-Reilly, publisher of Truck Parts and Service, found that 86 percent were doing better or much better in March of this year than in March 2010. Ninety-five percent expect to be doing better or much better six months from now.

About half expect to increase the size of their fleet during the same period by adding trucks and owner-operators. More than two-thirds plan to add full-time employees over the next six months — the greatest portion since Randall-Reilly began the survey in the summer of 2009. Indeed, lack of freight is hardly a problem. Rather, lack of drivers was the top challenge in March — bigger even than fuel prices.

The health of the trucking industry isn’t that surprising when you consider what is happening in the manufacturing industry. Factory orders in March were at their highest level in nearly three years.

The ratio of inventories to sales has been at near-historic lows for several months. And the Institute of Supply Management’s well-regarded indexes of manufacturing activity show solid growth in new orders, production and overall manufacturing activity.

Manufacturing is the lifeblood of trucking. Consider all the chemicals, steel and other raw materials needed for building parts and components, all the parts and components needed to build the finished product and all the products shipped to retail establishments and consumers. Each step involves a truck.

So everything is perfect. Well, not exactly. Construction — and especially housing — remains very weak. For that reason, you can’t expect the recovery in trucking to be as strong as it has been in recent economic recoveries, says Noël Perry, of transportation forecasting firm FTR Associates.

The trucking industry depends more than ever on manufacturing.

In a TPS webinar on the freight outlook last month, Perry said the boom housing market of 1995 through 2006 was significantly above the historical norm. (You can view the webinar at The historical average home ownership rate is about 64 percent, Perry says. But at its height, the rate at its peak was 69 percent.

Today, the portion of households that own rather than rent is about 66.5 percent, so there’s still a ways to go toward a normal market

A normal housing market generates 1.2 million new homes a year, Perry notes. During the recent boom, the United States was building about 500,000 more homes a year than that. And during the bust, we probably will be building only about 700,000 at best until the market reaches equilibrium, which could take several years, he says.

Meanwhile, infrastructure spending is constrained by political battles over taxes and the deficit, Perry says. That same political conflict if not resolved could lead to higher interest rates, inflation and another recession, he says.

But manufacturing is solid. What fuels the manufacturing sector that in turn fuels trucking? Business investment and exports. Although consumer spending remains soft, businesses are flush with cash and are investing. Meanwhile, the dollar’s weakness compared to foreign currencies makes U.S. goods more attractive overseas.

In fact, even if foreign investors lose confidence in the United States and interest rates go up, value for the U.S. dollar will make exports even more attractive, Perry says.

A weak housing market and rising interest rates suggest a volatile and potentially short-lived recovery, Perry warns. But for now, a strong manufacturing sector and a chronic driver shortage will keep your customers strong and profitable. And when customers are profitable, your prospects are brighter, too.

Avery Vise is executive director, trucking research and analysis for Randall-Reilly Business Media and Information.

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