looking for freight to thaw? Keep looking

Waiting for the 30-month U.S. freight recession to end? If projections by a noted transportation analyst are on target, you may have to wait a while longer.

Jon A. Langenfeld, analyst for Robert W. Baird & Co., told the SMC3 annual winter meeting in Atlanta in late January that he doesn't see a meaningful pickup in freight activity until late 2010 or possibly early 2011. An upturn of any type will not begin until the middle of next year, he said.

Langenfeld focused most of his comments on the U.S. trucking market, which he said is enduring its worst quarter since trucking was deregulated in 1980. Pricing remains weak, with rate-cutting rampant and shippers flooding the market with bids in search of rock-bottom rates, especially in the beleaguered less-than-truckload category. The truckload segment is in better shape than LTL due to significant capacity reductions made over the past 18 months. In fact, truckload capacity is so taut, Langenfeld said, that rates could soar about 16 percent from current levels once freight demand accelerates.

For many months, observers have pointed to a decline in existing inventories as a harbinger of an economic and freight recovery, the idea being that businesses will soon reach bare-bones inventory levels and then must begin to replenish their stock. The problem is that sales continue to fall at a faster clip than inventories can be liquidated. As a result, inventory levels have reversed course and stocks are now piling up.

After declining for a year, U.S. inventories rose by $6.2 billion in the fourth quarter of 2008, according to U.S. Commerce Department data. Commerce reported that the November 2008 inventory-to-sales ratio spiked to 1.41—meaning it would take, on average, 1.41 months to clear shelves of inventory at that specific monthly sales rate. That is the highest ratio since 2001, according to Commerce data.

Don Ratajczak, emeritus professor of economics at Georgia State University's J. Mack Robinson College of Business, told the group that production must begin falling at a faster pace than sales for a recovery to take hold. He said in late January that this had yet to happen, but that he expected the pattern to emerge by the end of the second quarter.

Ratajczak said the decline is rapidly accelerating and the bottom should be reached "fairly soon." Using the auto industry to illustrate his point, Ratajczak said that 2009 car and light truck sales in the United States could be as low as 10.5 million units—a level few expect to plumb—to as high as 13 million. Meanwhile, the number of units needed just to replace aging clunkers is about 16 million, he said.