North American transportation still surges despite fuel and weather issues

Monday, 09 May 2011 02:45:50 (GMT+3)   |  
       

Rising transportation costs due to peaking fuel prices has not yet negatively affected the North American transportation sector.

US trucking industry sees increases in both driver employment and demand

While recently-released quarterly statistics from the US trucking industry show hope on the horizon for the overall driver shortage, the industry is still dealing with spiking fuel prices--although not to a degree (yet) that has affected tonnage levels.

According to the American Truck Association's (ATA) quarterly trucking activity report, truckload and less-than-truckload carriers increased payrolls in the last three months of 2010--a trend that continued in the first quarter of 2011, sources tell SteelOrbis.  According to ATA Chief Economist Bob Costello, increased hiring, coupled with rising turnover, indicates that US trucking fleets are responding to signs of the growing economic recovery.

"Fleets are clearly hiring more drivers as demand for freight hauling increases," Costello said. "In addition, while part of the turnover can be attributed to regulatory changes, we believe the bulk of this churn is due to increased demand for drivers."

March tonnage data also confirms that demand in the trucking industry looks to be strengthening in the second quarter of 2011 after a brief stint of volatility in the first quarter.  The ATA's advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.7 percent in March, after falling 2.7 percent in February.  The not-seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 123.3 in March, up 20.7 percent from the previous month. 

Compared with March 2010, SA tonnage climbed 6.3 percent, which was higher than February's 4.4 percent year-over-year gain.  For the first quarter of 2011, tonnage increased 3.8 percent from the previous quarter and 6.1 percent from the first quarter 2010.

"Despite my concern that higher energy costs are going to begin cutting into consumer spending, tonnage levels were pretty good in March and the first quarter of the year," said Costello.  Looking ahead, he said, "While I still think the industry will continue to grow and recover from the weak freight environment we've seen in recent years, the rapid spike in fuel prices will slow that growth."  Costello also noted that as long as US manufacturing activity remains strong, truck tonnage will benefit.


Several indicators point to strong activity in the North American rail sector

Traffic volume on North American railways also continued to swell, attributed in particular to intermodal traffic.  According to the Association of American Railroads (AAR), containers--which transport steel-specific materials such as scrap--accounted for 85 percent of intermodal traffic in March.  However, availability is still reported as tight, with little to no flexibility in freight rates.

Adding to the rate equation--but not to the same degree as demand--is ever-rising fuel prices.  Fuel surcharges for most major railways will be 28.5 percent in June, a slight hike from May's 27 percent.  Looking at years past, June's surcharge is much higher than the 18.5 percent in June 2010 and the 10 percent in June 2009, but notably, it matches the 28.5 percent rate in June 2008--when diesel fuel prices also shot past $4.00/gallon.  That year, surcharges peaked at 35 percent in September, which is a trend many are worried about this year.

Despite the similar fuel situation, the overall economic situation this year is quite different from 2008, and weekly rail traffic data indicates that volume is increasing steadily, unlike the unstable economic situation three years ago.

According to the AAR, total carloads of rail traffic volume for the first 17 weeks of the year on 13 reporting US, Canadian and Mexican railroads were 6,439,628, up 3.3 percent from the same period in 2010.  Containers and trailers were up 7.9 percent, while metallic ore shipments increased 8.7 percent, metal products improved by 7.3 percent, and iron and steel scrap increased 2.1 percent.

Other positive indicators in the rail sector include increased employment (the US rail industry added 1,198 employees in March), a decrease in stored freight cars (down 22,667 in March), and an announcement by the AAR that the nation's freight rail companies are planning to spend a record $12 billion on capital expenditures in 2011, after setting the previous record of $10.7 billion in spending in 2010.


Spring storms swell rivers, halt barge traffic

In late April, spring storms pummeled the US Southeast, resulting in high river levels that made many barge waterways inoperable.  According to the US Geological Survey, most of the major flooding on the Mississippi and Ohio Rivers affected the Midwest and lower Eastern states, halting barge traffic north of Kentucky.  By early May, the situation had not improved much--on Friday, May 6, the US Coast Guard closed a 5-mile section of the Mississippi River at Caruthersville, Missouri, over concerns that the wake from barges could send water spilling over the floodwall protecting the town.  While it is too soon to tell how such closures will affect barge freight rates in the near term, it is likely that they will increase above already-high levels, which are mostly attributed to strong demand.

As for traffic on the Great Lakes, early spring activity has depressed somewhat.  According to the Lake Carriers Association, iron ore loadings were down 11.2 percent year-over-year in March.  However, the decrease is mostly blamed on the locks opening four days earlier in 2010--when compared to the first quarter 5-year average, Q1 2011 levels were up 9.4 percent.  Cumulative iron ore tonnage through March totaled 4.8 million tons.

Coal shipments on the Great Lakes, on the other hand, dropped 8 percent year-on-year in April, mostly from a significant reduction in coal cargos to Canada--Ontario has been phasing out the use of coal for power generation, and two docks that collectively shipped 17 coal cargos to Canada in April 2010 only shipped two this April.  Sources tell SteelOrbis that it's possible that this situation will have an effect on other coal shipments, such as metallurgical for steel production.


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