January 2009


Friday’s bad report on the fourth quarter’s Gross Domestic Product bodes ill for those who want to make a living moving freight in the coming months.

 

The economy contracted 3.8 percent in the final three months of 2008, according to the Commerce Department. But strip out production that merely inflated inventories, and the economy would have contracted 5.1 percent. Even with companies lopping off production like dead limbs, it wasn’t fast enough to compensate for worried consumers shutting their wallets.

In its report on the new GDP data, Fortune magazine notes: “By way of comparison, during the historically severe and long recession of 1981-82, consumption contracted in only a single quarter by a more moderate 3%. In the 1990-91 recession, spending fell by 2.8% and 1.7% in two consecutive quarters, while there was no single-quarter drop during the 2001 recession.”

 

Plug the low price of diesel and gasoline into the supply-and-demand formula, and it tells you supplies are plentiful. True enough, and they’re getting more plentiful by the day.

U.S. commercial crude oil inventories jumped 6.2 million barrels from the previous week, almost twice what was expected, according to Wednesday’s report from the U.S. Energy Department. That’s thanks to the anemic world economy, which is requiring less energy.

At this week’s NATSO Show 2009 in Nashville, truck stop operators heard the same thing, along with a brash prediction, reports my colleague Randy Grider, Truckers News editor, who was there. Wachovia Managing Director and Senior Economist Mark Vitner said the price of a barrel of oil is likely to dip into “single digits,” due to the economy and oil futures contracts that last year bet on sky-high prices.

Pretty amazing to consider that a commodity trading around $140 last year – when speculators were talking about a $200 target – could this year drop below $10.

Housing’s been down so long that it’s not hard to imagine it could begin to look like up. A few recent stats give that appearance, as a Wall St. Journal blog points out.

 

One is existing home sales rising 6.5 percent in December. The inventory of homes for sale has been dropping since July, and fell 13 percent in December.

 

Still, flatbedders don’t need to start whistling “Happy Days Are Here Again.” With tens of thousands of jobs being shed and lending still tight, housing and everything else faces major hurdles.

 

The Journal bloggers’ forecasts range from “the dismal condition of the labor market will remain a considerable drag on home sales over the remainder of 2009” to the slightly less pessimistic encouraging for our expectations of stable housing market in the second half of 2009.”

 

 

 

 

One of President Obama’s first moves was to prod the two agencies with the most influence over highway emissions into further tightening the regs.

 

On Jan. 26, he directed the U.S. Department of Transportation to establish higher fuel efficiency standards for carmakers’ 2011 model year. He also asked the U.S. Environmental Protection Agency to review whether to grant California and 13 other states the right to impose a 30 percent reduction in vehicle emissions following the Bush administration’s 2007 denial of the request.
 
The closest the orders come to our industry was inclusion of light trucks. But don’t be surprised if these agencies, led by California, set their sights on heavy-duty engine standards, whether it’s emissions or fuel efficiency.

 

Werner Enterprises brought in 7 percent less money during the fourth quarter, when the economy was spiraling down the toilet, yet its net income went up 20 percent from a year ago. It accomplished this by reducing the size of its fleet and taking other cost-cutting measures, the company reported this week. Declining fuel prices helped, too.

Just because you’re not a mega-fleet doesn’t mean you can’t get the same results in a downturn. You have to spend a lot of money to earn a dollar, but a dollar cut from costs goes straight to the bottom line, as our friends at owner-operator financial services provider ATBS often point out.

If you’re a one-truck show, you might not have much overhead to trim. But don’t overlook cost-cutting opportunities in professional and personal areas, such as trying to eat out less.

Diesel’s at the top of the wasted spending list for many owner-operators. It’s a lot cheaper than it was last summer, but it still eats up thousands of dollars. If you’re not doing all the well-publicized things to conserve fuel (driving slower on the highway, maintaining tire pressure, refraining from idling, starting and stopping slower, spec’ing area equipment), give them a try.

The economy might be bumpier than I-10 in Louisiana, but according to the feds, diesel fuel prices are in for a long, stable ride.

 

“The EIA expects diesel prices to average $2.27 per gallon for all of 2009,” says the Energy Information Administration. EIA’s latest average price is $2.30 per gallon.

 

OK … and this confidence in price stability comes only five months after diesel averaged $4.76.

 

While not addressing diesel, a Lundberg survey of 5,000 gas stations released last weekend implies the party’s over. It shows that gas prices are on the upswing, up 12 cents in three weeks.

 

Industry analyst George Clemen doesn’t state a price point, but has some good analysis about oil prices in his blog

 

“Historically, the US will stay on the energy conservation track for at least 2-3 years after a price shock like the one we just experienced. With the addition of a global downturn, international demand for fuels will also remain depressed. The price of crude oil could easily continue its free fall to $20 per barrel or lower, but will eventually bounce back, probably in the range of $30 to $45, where it may stay for several years — just below the price necessary to justify continuation of energy conservation projects. Looking back, the time between crude oil price peaks is consistently 8 to 10 years.”

December data is in from Cass Information Systems, and it looks like the year ended on a grand whimper.
     After a modest pick-up during the first half of 2008, freight expenditures and shipments dropped in the second. The final months took an increasingly steep freefall, as you can see from the Cass chart:  

www.cassinfo.com/frtindex.html

    January is historically slow for trucking, so don’t be too surprised if things get worse.

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