Trucking Conditions Index rises

The Trucking Conditions Index (TCI) inched up slightly in March, staying above 5.0 for the fifth straight month but just slightly below our expectation. The index rose 0.5 points to 6.4, which was below our expectation of a 1.4 point gain. The index is 6.9 points below its level one year prior. Slightly weaker than expected freight volumes during the first quarter has kept a lid on seeing stronger upward movement in the TCI.

The index shows the clear u-shaped pattern of industry conditions in 2011-2012 as the strong demand growth of 2010 faded. Now, with an improving economy and growing regulatory drag, market tightness is slowly developing again with trucking conditions approaching their favorable 2010 levels by year’s end.

Outlook
After bouncing around in mildly positive territory in 2011, the FTR Trucking Conditions Index is beginning a slow climb to strongly positive territory in 2012. Volume and profits will be sufficient for investment for growth by year’s end. There was a slight reduction in the outlook this month, but not a noticeable difference. We still expect to get close to double-digits by the end of the year.

The index is expected to remain in modestly positive territory for most of 2012, ranging between 5 and 10. 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 TCI index growth was greater.

Analysis
The truckers’ ability to sustain price despite soft volume growth has kept the trucking conditions index in mildly positive territory. In addition, fuel prices have finally moderated, and our diesel price outlook moved lower this month. Volume expectations are improving now that we have gotten through a moderately sluggish Q1. This index should follow suit in 2012. By year’s end, it should be high enough to encourage some investment for growth.

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 of HOS. The index has been above 5 for 15 of the last 17 months and we continue to expect some modest acceleration as we move further into 2012. Solid industry conditions (growth, capacity, pricing) have kept this index well in the positive, but still below the heights associated with the strong growth spurt in 2010 that improved the TCI into early 2011.

In 2004 we had a combination of both strong industry growth and big regulatory drag occurring during the same year. The delayed 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.

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.