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Cat economists: Freight may fall in ‘08

A sluggish United States economy will keep freight to minimal if not negative growth in 2008, states a report by Caterpillar’s economists.

FCC Equipment Financing Inc., a subsidiary of Caterpillar Financial Services Corp., has released a transportation industry report produced by Caterpillar economists giving projections for the North American transportation industry for this year.

“The United States economy is expected to continue to grow below trend in 2008,” the report stated. “Gross Domestic Product has grown less than 3% in six of the past nine quarters, causing the annual average growth rate to be below the 3.3% long-term trend since the second quarter of 2005. U.S. GDP will grow 2.2% in 2007…With many industries that lead the economy in decline and no clear sign of imminent and significant monetary stimulus, we expect the U.S. economy to grow only 1.5% in 2008.”

Transportation has also been affected by several issues keeping the level of freight stagnant. Driver shortages, the price of oil—which has more than quadrupled in the past six years, according to the American Transportation Research Institute (ATRI)—and increased congestion has led to decreased cargo.

“The implication for the trucking industry is that freight will be flat to down about 1% in 2008,” the report stated. “Both the American Trucking Associations Tonnage Index and the broader Freight Transportation Services Index are down 2.2% so far this year. Freight rates and carrier profits are under pressure as capacity increased in 2006 and freight demand has not.”

Commenting on the report, Chris Brady, president of Commercial Motor Vehicle Consulting, told FleetOwner that “flat to down 1% is reasonable…Consumer spending is going to be really sluggish in ’08.”

However, Brady added that some segments of freight—especially building materials--will be down considerably more than 1%. On the positive side, exports are growing, he said.

The report, titled "FCC 2008 Economic Insight: An Annual Outlook on the Transportation Industry," also projects that new heavy-duty vehicle purchases will rebound slightly, up to about 140,000 vehicles in 2008 compared to 135,000 in 2007, mostly due to replacement as many carriers will age-out equipment rather than purchase new vehicles, the report said.

The medium-duty forecast is less promising. “Demand for midrange trucks will be down about 17% in 2007 with about 120,000 vehicles purchased,” the report said. “In 2008, we expect demand to be down another 10% from 2007 levels at 108,000 vehicles. Continued weakness in the housing sector will decrease demand for construction-related vehicles, and slower economic growth will put pressure on corporate profits, discouraging purchases of new delivery vehicles.”

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