Trucking Conditions Index drops

The Trucking Conditions Index (TCI) is bottoming out after a long gradual decline from 2010’s robust industry growth. After a big drop in May, June’s decline was relatively modest and in line with expectations. The index dropped just 0.6 points to 4.5. 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 near-term outlook continues to weaken but expectations for a recovery in 2013 are still intact.

Outlook
After staying mildly positive in 2011, the FTR Trucking Conditions Index ticked up in early 2012 but has fallen sharply since then. The index value has fallen by more than half since April. 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 expect to get close to double-digits in early 2013.

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 upcoming reversal in performance is due to the introduction of several regulatory changes late this year and in 2013. Despite delays, FMCSA is on path to implement them – specifically, stricter HOS regulations.

Record low fleet failures during Q2 are skewing the near-term index data lower – simply because we expect that number to rise modestly going forward. While still at a historically low level it will be moving higher and that is pulling the TCI index lower. Strong capacity utilization continues to help prop up the index – well into positive territory.

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 versus year-ago fuel prices and continued freight growth- the index should steadily increase into 2013.

Recent History
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 index has been above 5.0 for 17 of the last 20 months but has now weakened below that and we don’t expect to see acceleration until we get into late 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.