Trucking Conditions Index higher

The Trucking Conditions Index (TCI) moved up for the second straight month in December, above our expectations. The index rose to 7.0, up another 1.8 points from November. The index is unchanged from its level one year prior. The index has been above 5 for 12 of the last 14 months and should continue to accelerate in early 2012. Solid industry conditions (growth, capacity, pricing) have kept this index well in positive, but still below the heights associated with the strong growth spurt in 2010 that improved the TCI into early 2011.

We updated our outlook in early January to account for the officially released Hours-of-Service (HOS) rules. The start is for a later date than our original estimates included, the final rules are for a July 2013 implementation date. Also, the full impact of the rules are now estimated to have only a ~3% drag on trucker productivity, compared to the nearly 5% hit that we previously estimated. The delay has the effect of stagnating the TCI during 2012. The outlook for 2012 is relatively unchanged from that earlier update, though it has moved upwards slightly.

Analysis
The rough balance between increased recruiting and the capacity pressures from tonnage growth and regulatory drag will keep this index in good, positive territory in 2012. Stronger conditions await either an acceleration in economic growth or the major HOS implementation in 2013.

While the index is looking to be a positive figure, it is well below the highs seen in early 2011 or during the last upturn in 2004. The TCI should hit double-digit figures as we get into 2013 and approach the implementation date (if it actually occurs).

In 2004 we had a combination of both strong industry growth and big regulatory drag occurring during the same year. The further delayed (and likely litigated) HOS rules this time around mean that the impact will be more muted. The industry will have recovered from much of the cyclical effects of the strong early growth during this recovery; however, the inclusion of numerous other regulatory factors (CSA, etc) means that the impact on the driver shortage will likely peak at nearly the same level as back in 2004.

Outlook
The near-term improvement in the freight data modestly pushed up the index for 2012, but it is likely to stay at a level that is near 10, yet just under. Conditions will start to improve during the latter half of 2012 and into 2013 as we approach the HOS introduction slated for July of that year. As we get into 2013 we look for the TCI index to move above the double-digit mark and likely stay above that until well into 2014. We are not anticipating a huge surge in the index since the rules have a long-lead time and will not be occurring during a freight surge – one of the reasons why the 2004 impact was greater.

ABOUT THE INDEX:
FTR’s Trucking Conditions Index (TCI) measures five specific categories that effect the freight markets and truck carriers. Those categories are: freight volumes, capacity utilization, cost of capital, trucker bankruptcies/failures, & fuel. The index is correlated so that a mark near zero is consistent with a trend market, conditions are neither good nor bad. A positive number means a good market for truckers and, likewise, a negative number means a bad environment for truckers.