Trucking Conditions Index falls

The Trucking Conditions Index (TCI) dropped in May. A decline was anticipated but the amount of the drop was more than we expected. After April hit its highest level since last September, the index dropped 4.0 points to 5.1. It remains in the moderately positive range but is at its lowest level since October of last year when industry conditions were weak following the late summer panic. The May drop was fueled by weaker loadings growth and a weaker outlook for our active truck utilization estimate.

Outlook
After bouncing around in mildly positive territory in 2011, the FTR Trucking Conditions Index had been climbing back into strongly positive territory in early 2012. We expect weakness to persist during the summer months before getting solid expansion during the second half of the year and into 2013 ahead of HOS implementation in mid-2013. We now expect to get close to double-digits in early 2012 rather than towards the end of 2012.

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 FTR Trucking Conditions Index is at a relatively low level for this point in recovery. It reflects the soft pricing results for Q1 of 2012 and the moderate levels of driver shortages.

The main driver of the weaker than expected results was our lowering of the capacity utilization estimates for the rest of 2012. Instead of a slow move upwards we now expect utilization to remain just-under the 95% mark into early 2013 before finally moving up when HOS comes into play.

We expect the index to remain weak during the summer months before showing improvement. Given our expectations of a rising driver shortage – combined with a tailwind from fuel prices and continued freight growth- the index should steadily increase into 2013.

The truckers’ ability to sustain price over the last year despite soft volume growth has kept the trucking conditions index in mildly positive territory. In addition, fuel prices are showing significant declines, and our near-term diesel price outlook moved lower – once again. By 2013 the TCI 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 5.0 for 17 of the last 19 months (October 2011 was the last time below 5), and we expect to see modest acceleration once we get into the second half of 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. Fuel is noticeably absent from that list but should start to be a positive, at least in the near-term.

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.