Strangely, while railroads are enjoying whacking profits, trucking firms are not.
But here's where it gets weird. In theory, the fortunes of all the components of the Transport Index, which include shippers, truckers, railroads, and airlines, should move somewhat in tandem. Most goods that are sent by ship, rail, and air have to go on a truck at some point. It would be strange for one link in the freight chain to be doing well while others are dragging.
And yet that's precisely what seems to be happening. Truckers, who carry 70 percent of all domestic freight, are doing poorly. The American Trucking Associations' Truck Tonnage Index fell through 2006. And in the fourth quarter of 2006, the index was down noticeably from the fourth quarter of 2005, even after accounting for the temporary post-Katrina spike.
The reasons are weird as well:
A second rapidly growing energy source also helps rail companies while doing nothing for truckers: ethanol. As the Wall Street Journal reported this week, ethanol can't be pumped through existing oil pipelines. And it makes far more sense to ship the fuel in 30,000-gallon tank cars than in tanker trucks. Ethanol shipments tripled between 2001 and 2006 and are expected to rise 33 percent in 2007, the Journal reported.
Another large, but seemingly irrelevant, economic trend appears to be hurting truckers: gift cards. American Trucking Associations Chief Economist Bob Costello noted that "the fall freight season is changing." With the proliferation of gift cards, the holiday shopping season is spilling over into January. So, retailers aren't moving as much merchandise to stores in October and November as they have in the past. [More]
I've also been wondering about those farmers who have launched successful trucking companies as a sideline only to be knee-capped by the proposed AGI limits.
To receive commodity payments, producers must also meet a limit on Adjusted Gross Income (AGI), which includes wages and other income minus farm expenses and depreciation. This plan reduces the AGI limit of $2.5 million to a new limit of $200,000. If a producer has an annual adjusted gross income of $200,000 or more, that individual would no longer be eligible for commodity payments. Internal Revenue Service (IRS) data for 2004 indicate that 97.7 percent of all American tax filers have an AGI under $200,000. [More]
That'll teach 'em to work hard in the off-season.