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The Inventory Thorn in Trucking's Side

For many trucking companies business has slowed, and recent numbers bear this out, both in first-quarter earnings reports as well as in broader statistics.

Evan Lockridge
Evan LockridgeFormer Business Contributing Editor
May 6, 2016
The Inventory Thorn in Trucking's Side

Source: Census Bureau

3 min to read


Source: Census Bureau

For many trucking companies business has slowed, and recent numbers bear this out, both in first-quarter earnings reports as we went to press as well as in broader statistics.

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The most recent Cass Freight Index of domestic shipment volume in all modes is below levels from 2015 through 2013. U.S. Transportation Department for-hire freight figures in all freight modes for February showed a decline from January, due in part to a substantial decline in trucking, and is just barely higher than a year earlier.

And while the American Trucking Associations’ monthly measure of freight tonnage was up in February, ATA Economist Bob Costello cautioned the increase was mainly due to a weaker than average January — and there was another warning.

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“I’m still concerned about the elevated inventories throughout the supply chain,” he said. “The Census Bureau reported that relative to sales, inventories rose again in January, which is troubling. We need those inventories reduced before trucking can count on more consistent, better freight volumes.”

Since his remark, those inventory numbers for February were released, showing the level is virtually unchanged. February’s inventory-to-sales ratio hit 1.41, the highest level since mid-2009. And it looks like they aren’t going anywhere soon. ATA’s March for-hire tonnage index shows a 4.5% decline from the month before, “because of the current inventory overhang throughout the supply chain,” according to Costello.

When inventories are high, businesses order fewer products, and that’s less freight to move by truck. There are a number of reasons this happened: a surge of freight following the West Cost longshoremen strike last year, flat or falling retail sales in the first quarter, year-over-year manufacturing numbers that have been down for months, plus the stronger dollar that makes U.S.-produced goods less affordable overseas.

One could easily argue that inventories being too high is the main reason both trucking and the economy feel like they have a thorn stuck in their sides.

Speaking in late March at the Fleet Forum during the Mid-America Trucking Show in Louisville, Ky., Eric Starks, president of FTR Transportation Intelligence, said business inventories are to blame for a lackluster economy and trucking environment, despite other positive indicators such as employment, passenger vehicle and light truck sales, stable fuel prices and even housing.

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“Inventory levels are now problematic,” he said. “Too much inventory reduces demand for freight transportation. We need to see inventories go down before [business] orders can pick up.”

This inventory drag, Starks said, had led to flat orders for core capital goods, an indicator of future business investment, affecting truck freight levels.

A bright spot for the economy is that people are spending money – the problem is it’s not on products that result in truck freight, but rather on services, according to Jack Kleinhenz, the National Retail Federation’s chief economist, cited in a story by DC Velocity.

However, Starks said freight-loading originations are tending up, and he’s forecasting modest growth for them into next year. He also said he believes we’ll see moderate overall economic growth, with the GDP forecast to increase 1.8% to 2% this year. While this is short of the average annual rate of 3.2% seen from 1993 through 2007, it’s not bad either.

Related: Freight Shipments Ease as Spending Declines

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