KANSAS CITY — With increasing agreement that the recession is bottoming and that conditions will begin to improve in the second half of 2009, bulk and container freight demand, which often is a leading indicator of a turn in economic activity, is being closely watched. But through the first five months of the year, freight demand has shown little, if any, signs of improving.
Truck tonnage, a key indicator of economic activity because trucks move about 70% of domestic tonnage carried by all modes of freight transportation, fell to its lowest level in April since November 2001, as measured by the American Trucking Associations’ For-Hire Truck Tonnage Index. April 2009 tonnage was down 13.2% from April 2008, the largest year-over-year decrease in 13 years, the A.T.A. said.
"While most key economic indicators are decreasing at a slower rate, the year-over-year contractions in truck tonnage accelerated because businesses are right-sizing their inventories, which means fewer truck shipments," said Bob Costello, chief economist for the A.T.A. "The absolute dollar value of inventories has fallen, but sales have decreased as much or more, which means that inventories are still too high for the current level of sales. Until this correction is complete, freight will be tough for motor carriers."
The association’s seasonally adjusted index stood at 99.2 (2000 = 100) in April, down 2.2% from March (which was down 4.5% from February) and was the lowest since November 2001. The April not seasonally adjusted index, which represents the change intonnage actually hauled before seasonal adjustments, was down 2.9% from March at 101.6, the A.T.A. said.
"It could be a few more months" before truck freight hits bottom, Mr. Costello said.
Rail shipments told much the same story. U.S. May rail carload traffic was down 25% from May 2008 at 989,306 carloads, and intermodal traffic was down 20% from a year ago at 723,898 units (trailers and containers), the American Association of Railroads said. Grain carloads totaled 21,910 in May, down 25% from a year ago, compared with metals and metal products down 63%, motor vehicles and equipment down 52%, chemicals down 18% and coal down 16%.
"Industrial production is still down sharply across the board," said John T. Gray, senior vice-president for the A.A.R. "That means lower demand for rail service for everything from chemicals and scrap metal to cement and ores. Basically, railroads are in a waiting game — waiting for the economy to turn."
U.S. carload rail traffic totaled 1,349,097 loads in the first five months of 2009, down 20% from the same period last year, the A.A.R. said, while intermodal traffic was 788,814 units, down 17% from a year ago.
Another indication of sluggishness in rail demand was the Surface Transportation Board’s monthly employment report of class I line-haul railroads, which showed all employees in April at 154,263, down 6% from April 2008. Transportation (train and engine) employees stood at 58,806 in April, down 14% from a year earlier and by far the largest decline of the six categories measured. The reduction in train and engine employees was a point of concern for some in the grain industry, who indicated that should rail demand be stronger than expected in a given area, the railroads might be pressed to have engineers available even if locomotives and cars were plentiful.
Ocean freight rates, on the other hand, while significantly below year-ago levels, have been rising the past several months.
The U.S. Department of Agriculture noted in its June 4 Grain Transportation Report that the cost of shipping wheat from Kansas or North Dakota through the U.S. gulf to Japan in the first quarter of 2009 was up about 18% from the previous quarter but was down about 65% from the first quarter of 2008.
"Ocean rates increased in part due to more iron ore imports to China," the U.S.D.A. said. "Compared to last year, however, the change in ocean rates was significantly lower because bulk vessel supply is outpacing demand."
The number of ocean going vessels in U.S. gulf ports or due to load grain in the next 7-10 days as of May 28 was down from 11% to 50% from 2008 averages, indicating the slow pace of export demand, the U.S.D.A. said.
The freight rate to ship grain from the U.S. gulf to China was $38 a tonne in the last week of May, down 53% from $80 a tonne for the same route a year ago, according to one example from the U.S.D.A.
Lloyd’s List International reported in early June that rates for shipping grain or iron ore from the U.S. gulf and eastern South America to Asia was at an eight-month high, and that vessels for immediate loading were in short supply.
The bulk dry freight index on London’s Baltic Exchange finally eased slightly early last week, after trading higher for 15 consecutive sessions through June 5, as traders questioned whether China’s demand for iron ore could persist, according to the Reuters news service.
In addition to the general slowdown in demand for all types of transportation services due to the domestic and global recession, demand to ship agricultural products, especially grains, has seen a dramatic decline due to reduced domestic livestock herds, which would have the greatest effect on trucks, and exports, which affects rail, barge and ocean vessels as well.
Marketing year-to-date export shipments of all wheat, corn and soybeans through May 21 totaled 84,986,000 tonnes, down 18% from 103,837,000 tonnes for the same period a year ago, according to U.S.D.A. data. Wheat shipments totaled 25,338,000 tonnes through May 21, down 20%, and corn exports were 30,667,000 tonnes, down 33%.
At 28,981,000 tonnes for the marketing year to date through May 21, only soybeans were ahead of the year-ago pace, up 11% for the period. Were it not for China, for which total sales commitments (not necessarily shipped yet) of U.S. soybeans for the current and next marketing years were up 41% from the same date a year ago, even soybean exports would likely be down since sales commitments to the other four major buyers were down from 4% to 41%. Sales to China slowed significantly the past couple of weeks as U.S. soybean prices rose to nine-month highs and additional supply has become available from South America.
Rail deliveries of grain to U.S. ports were down dramatically for the year. Year-to-date carloads through May 27 totaled 128,562, down 44% from 229,583 carloads during the same period a year ago, according to the U.S.D.A. Cross-border shipments to Mexico were up 30%, at 16,681 carloads, while deliveries to four key export port regions were down from 41% to 63% for the year. Railroads typically originate about 35% of U.S. grain shipments, the U.S.D.A. said.
"Ag is somewhat insulated from the economy," said Suann Lundsberg, a spokesperson for Burlington Northern Santa Fe Railway. "On the domestic front, demand was slowly rising through 2008, but the recession resulted in some declines in domestic consumption in the second half of the year. In 2008, the U.S. exported record volumes of corn and wheat. Asian protein demand drove an increase in soybean exports. However, toward the end of 2008, we began to see cuts in export projections due to significant increases in world wheat and corn production."
The tariff rate per car for a unit train for shipping wheat from Kansas City to the port of Galveston, for example, was $2,528 as of June 1, unchanged from a year ago, the U.S.D.A. said, although the overall cost of shipping was down about 12% because of the reduced fuel surcharge this year. Overall, costs for shipping grain by rail (whether to ports or to inland points) were mostly lower from a year ago, but varied from 7% higher to 19% lower. Costs for shipping grain to Mexico were down from a year ago in all instances, with savings ranging from 6% to 18%, according to U.S.D.A. data.
Unlike rail, barge grain shipments to the U.S. gulf were up from a year ago. Year-to-date grain moved by barge through May 30 totaled 13,721,000 short tons, up 19% from the same period last year, the U.S.D.A. said. As with most other modes of transportation, barge freight rates were down, with savings ranging from 24% to 50% of a year ago.
A major factor contributing to lower costs for shipping grains and freight in general is related to diesel fuel prices, which have been rising in recent weeks but are far below year-ago levels. The key national weekly retail on-highway average diesel price was $2.498 a gallon as of June 8, up more than 14c from a week earlier and up 48c, or 24%, from the 52-week low of $2.017 a gallon on March 16, according to the Energy Information Administration of the U.S. Department of Energy.
The average price has risen weekly since May 4, but was 47% below the year-ago value of $4.692 a gallon, which at the time still was on the rise to a record high of $4.764 a gallon set July 14, 2008.
For truckers, the difference in the current diesel price from a year ago means about $650 per fill-up, based on a 300-gallon fuel tank capacity on a semi-tractor/trailer rig.
Railroads, meanwhile, have slashed their fuel surcharges, which are based on the U.S. average highway diesel price with a two-month lag. At the Burlington Northern Santa Fe Railway, for example, the mileage based fuel surcharge on agricultural products will be 25c a mile in July, unchanged from June and up slightly from a multi-year low of 22c in May, but far below the 52-week high of 87c last September and 80c in July 2008.
For a company shipping grain by rail from Kansas City to the gulf, for example, roughly 750 miles, a 55c-a-mile reduction in the fuel surcharge from a year ago would mean savings of more than $400 per car, or about $45,000 per 110-car unit train.
"Oil prices rose for the third consecutive month in May, driven in part by expectations of a global economic recovery and future increases in oil consumption," the E.I.A. said in its latest Short-Term Energy Outlook issued last week. "In addition, a weaker dollar and increasing financial market activity are prompting higher prices for commodities, overshadowing weak oil supply and demand fundamentals." Consequently, the E.I.A. raised its price forecasts for crude oil and diesel fuel for 2009 and 2010.
West Texas intermediate crude oil prices were forecast to average $67 a barrel in the second half of 2009, up about $16 from the first half and up $12 from the previous month’s forecast, the E.I.A. said. Full-year prices were forecast to average $58.70 a barrel in 2009 and $67.42 in 2010, both well below the 2008 average of $99.57.
Diesel fuel prices were forecast to average $2.40 a gallon this year, up 14c from the May forecast, and $2.67 in 2010, up 19c from the previous forecast, and compared with $3.80 last year, the E.I.A. said. Should the predictions for higher diesel prices come to fruition, fuel surcharges also will rise.
With total area planted for harvest in 2009 down about 1 million acres from 2008 and down more than 8 million acres from 2007, indicating lower total crop production, and total exports of corn, wheat and soybeans in 2009-10 projected to rise only about 1% from 2008-09, it would appear unlikely that freight demand for grains and oilseeds would become pressing. Rising energy prices likely will push shipping costs up from current levels, but not to year-ago highs anytime soon.