Looking down the road

by Ron Sterk
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KANSAS CITY — Shipments of all types of freight by both truck and rail are down from a year ago, while costs to shippers and shipping companies continue to increase.

"In general tonnage has been off this year for all types of transportation," said Bob Costello, chief economist for the American Trucking Association (A.T.A.).

The latest A.T.A. truck tonnage index was down 2.6% from a year ago through July. Tonnage in July was in fact down 3.7% from July 2006, the index showed, although on a seasonally adjusted basis, July 2007 tonnage was up 0.3% from June.

As with other parts of the economy, the slowdown in the housing market has had a significant impact on the trucking industry, the A.T.A. said.

"The weakness in the residential construction market continues to have a disproportionately larger impact on truck tonnage than the number of loads transported," Mr. Costello said. "Construction freight on average weighs more than general freight."

The actual number of "for hire" loads in the first half of 2007 was up 0.4% from the same period last year, he noted.

The strongest segment of the trucking industry has been refrigerated freight, Mr. Costello said. Bulk freight, which includes grain, and tankers, which includes milk and ethanol, also has been stronger than the general tonnage index, he said. The A.T.A. does not provide separate data for bulk and tanker freight.

"Capacity currently is not tight in any group," Mr. Costello said, referring to the A.T.A.’s truckload segments of dry van, flatbed, refrigerated and bulk/tank.

"More trucks are available than a year ago," Mr. Costello said. He noted refrigerated trailers would be "a little tighter" compared to other segments. The food industry always has capacity issues during peak (harvest) seasons, he added, but trucks "might not be quite as tight as in years past."

Railroad tonnage down 3.5%

Rail car availability entering the fall harvest season is in better shape than in many years past, with the exception of last year, although 7- to 10-day delays in car placement have been reported in the hard red winter wheat region of the Southwest and in the spring wheat region of the Upper Midwest. Traders also noted permits were required for cars going to the Gulf, but that the permits were not difficult to secure.

In the first eight months of 2007, rail shipments totaled 11,367,593 carloads, down 3.5% from the same period a year ago, the Association of American Railroads (A.A.R.) said in its Sept. 6 rail traffic report. For August alone, total rail freight carloads were down 1% from August 2006, although grain carloads were up about 6% for the month. In the week ended Sept. 1, grain carloads were up almost 8% from the same week last year, the A.A.R. said, but for the first 35 weeks of the year, grain traffic was down 5%.

Even intermodal traffic, which consists of trailers and containers and is not included in carload data, decreased almost 2%, to 8,061,355 units, during the January-August period, the A.A.R. said. Intermodal traffic in August was down more than 5% from a year ago. For some time intermodal had been the rising star of the railroads, sometimes to the detriment of commodities in the battle for limited numbers of locomotives and employees.

Tariff rates up, fuel mixed

In its Agricultural Refrigerated Truck Quarterly, the U.S. Department of Agriculture said truck shipments of fruits and vegetables in the second quarter (the most recent available) totaled 8.4 million tons, up 29% from the first quarter and up 1% from the same period last year, as an exception to the general decline in freight.

Long-haul rates for refrigerated trucks hauling produce in the April-June period averaged $1.90 per mile, up 33c, or 21%, from the first quarter and up 6c, or 3%, from the second quarter of 2006, the U.S.D.A. said. Diesel fuel prices averaged $2.81 a gallon, up 11% from the first quarter but down 1% from the second quarter of 2006. On-highway diesel prices averaged $2.92 a gallon as of Sept. 10, according to the Energy Information Administration.

"Fuel surcharges are still pretty prevalent," Mr. Costello said of the trucking industry. "If they were not prevalent, high fuel prices would result in reduced capacity."

In its Sept. 6 Grain Transportation Report, the U.S.D.A. showed railroad fuel surcharges for September and October at 24.9c per rail car mile, down 11% from a year ago but 47% above the three-year average.

The U.S.D.A. also showed tariff rail rates as of Sept. 4 for unit trains (at least 52 cars) for various U.S. routes ranged from even to 21% above the year-ago rate for wheat, even to up 40% for corn and 10% to 29% higher for soybeans.

Barge freight rates for grain, meanwhile have soared.

"A record corn crop in the South has caused unusually widespread demand for barges in the mid-south and southern portions of the Mississippi river and has driven barge rates to record levels," the U.S.D.A. said. The rate from St. Louis to the Gulf soared to 930% of tariff ($37.11 per ton) on Sept. 4, up 85 percentage points from a week earlier and above the previous record set in October 2005 after Hurricane Katrina disrupted barge traffic in the Gulf region.

"Barge rates are likely to continue to increase as areas farther north enter their harvest season," the U.S.D.A. said.

Truck and rail capacity are expected to be strained during the fall harvest this year as well, even if availability is not as tight as in some years past, largely because of the record large corn crop, forecast last week by the U.S. Department of Agriculture at 13,308 million bus, up 26% from a year ago. Although soybean production was forecast at 2,619 million bus, down 18% from a year ago, sorghum production was forecast at 495 million bus, up 78% from last year, and the wheat crop, for which harvest already is completed, was estimated at 2,114 million bus, up 17% from 2006.

Strong export demand, especially for wheat, but also for corn, soybeans and sorghum, has meant heavy shipments to ports the past several weeks. Record high wheat prices have encouraged farmers to sell a greater percentage of their 2007 wheat crop than in most years past. Decade-high corn and soybean prices are expected to encourage early sales of corn and soybeans as well, which will further strain transportation capacity this fall. Additionally, some traders noted, a lack of storage for the massive corn crop will result in a large amount of the grain piled on the ground, for which owners also will seek transportation as soon as practical.

Issues remain down the road

Although the trucking industry generally operates at some level of over capacity, especially this year, the outlook is for more tightness in the future, Mr. Costello said. Some of the current excess truck capacity was the result of trucking companies "pre-buying" engines in 2006 before new regulations went into effect this year, he said.

"Tonnage shrank 1.5% last year, but there was a record number of Class A trucks sold in 2006," Mr. Costello said. This year freight companies are not adding capacity and are in fact shrinking fleets as trucks bought ahead but not put in service now are replacing older trucks.

The issue of driver shortages also looms ahead even though the tightness is not as severe this year because of the general reduction in tonnage.

"The demographics still are against us," Mr. Costello said in reference to the aging group of current truck drivers and the lack of younger drivers entering the field.

Another critical issue facing truckers is a proposed reduction in the hours of operation in which a driver may operate a truck, which would effectively reduce truck freight capacity, Mr. Costello said. The A.T.A. on Sept. 6 asked for an eight-month stay of a court decision to eliminate the 11-hour daily driving limit and 34-hour restart provisions of hours of service regulations, "to avoid serious disruptions to trucking operations."

Still another concern for all three modes of transportation — truck, rail and barge — is the growing demand to move increasing volumes of alternative fuels, especially ethanol. Since corrosion issues prevent ethanol from being shipped by pipeline, the traditional method to transport energy products, the only options are trucks, rail cars and barges. In 2005 when ethanol production was 3.9 billion gallons, 60% was transported by rail, according to the A.A.R., 10% by barge, according to the Army Corps of Engineers, and 30% by truck.

But as new ethanol production facilities come on line in the next 12 to 18 months, production capacity is expected to exceed 12 billion gallons, double the current level, railroads and barges are expected to strain their capacity levels, in part because of where ethanol production facilities are located.

"Tank trucks that typically transport petroleum products now have to adjust to the rapidly growing ethanol business," the U.S.D.A. said in a recent Grain Transportation Report. "Driver and equipment shortages may leave some areas without services."

Additionally, demand will grow for trucks to move bulk grain to ethanol production plants, the U.S.D.A. said.

This article can also be found in the digital edition of Food Business News, September 18, 2007, starting on Page 1. Click here to search that archive.

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