Stephens Inc. reported that Q1 LTL rates increased 2.9% from 2012 to 2013, but decreased sequentially by 1.6% from the fourth quarter. Stephens expects LTL rates to increase by 3% in 2013. From the peak level in 2007 LTL rates dropped 9.2% by 2010, and while rates have increased in the last two years, they remain 2.7% less than peak rates in Q3 2007. Weight per shipment continues to increase as lower weight shipments shift to parcel carriers and TL carriers avoid multi-stop shipments. Generally, the higher the weight per shipment the lower the cost per hundredweight, so real prices for equivalent shipments may be rising at a faster pace than the Stephens index indicates. Tonnage increased 0.6% in Q1 compared to the same period last year. The challenges facing LTL carriers are apparent with pricing in 2013 roughly equivalent to 2006 pricing, despite increases in most trucking related costs. Some of the capacity issues that will impact the TL segment, like CSA and hours of service, are not as relevant in the LTL segment, but industry consolidation does provide better pricing power than is the case for TL carriers..
Graphs reproduced with permission from Stephens Inc. For more information contact: Jack Waldo at email@example.com or Chris Glancy at firstname.lastname@example.org
Stephens Inc. released their first quarter 2013 update on publicly traded TL carriers reporting that rates per loaded mile excluding fuel surcharge decreased 2.6% sequentially from Q4 2012 to Q1 2013 and increased by only 1.4% year-over-year from Q1 2012 to Q1 2013. This marks 12 straight quarters of year-over-year gains, but the lowest year-over-year growth since Q2 2010. Stephens is expecting full-year 2013 TL rates to increase by 2-3%. The data does not necessarily represent the entire TL industry as the publicly traded carriers tend to be larger and more successful in general so are also likely to be more successful in raising rates. In addition, shorter lengths of haul increase revenue per mile without necessarily being indicative of price increases. Average length of haul dropped from 759 miles in 2006 to 611 in 2012, but held ground at 615 in Q1 2013 . Shorter hauls also mean lower equipment utilization that is detrimental to driver earnings and carrier financial returns. As the economy and freight volumes have softened, the rate of TL price increases has also softened. When the economy recovers and capacity and productivity-damaging regulations such as CSA and changes in hours of service take full effect, we expect TL rates to increase at a faster pace, At this point it appears hours of service changes will be implemented July 1 of this year.
Ocean freight rates have continued to decline through mid May. To the west coast, rates are down $785 and to the east coast down $946 since the August 10th peak. Rates were rising early in the year, but are off about $200 from early January. Rates remain well above prior-year rates with the west coast up $396 (17%) over the same period last year and the east coast up $389 (11%). The Shanghai Containerized Freight Index (SCFI) for west coast ports was $1,997 per FEU and to east coast ports was $3,152 on May 10. The SCFI reflects spot market rates for the Shanghai export container transportation market.
Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks totaled 14.9 million in April, down slightly from 15.2 million in March. The annualized sales rate had exceeded 15 million units for 5 straight months. The National Automobile Dealers Association (NADA) said it expects 2013 sales to total around 15.5 million units. Using our 3-month moving average, sales are up 6.6% from the prior year, dropping below 10% growth for the third straight month after exceeding 10% every month since December 2011. Auto sales remain about 10% below the average annual sales of 16.7 million from January of 2001 to December of 2007, before sales started to decline in 2008. The low point for sales were the first six months of 2009, when annualized sales averaged 9.6 million. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.
Weekly retail on-highway U.S. diesel prices rose to $3.866 per gallon on May 13, breaking a string of 10 straight weeks of falling prices. Diesel prices had fallen 31.4 cents during that period before rising 2.1 cents this week. Diesel was above $4 for eight straight weeks beginning in February of this year. In 2012, diesel prices exceeded $4 for a total of 26 weeks. The recent low price point for diesel was $2.023 on March 16, 2009. A view of weekly prices over the last 4+ years shows generally higher prices in each year over the preceding year until the last few months. At this point diesel is below the same-period price of 2012 and 2011. Diesel prices peaked at $4.771 per gallon in July of 2008 and were above $3 per gallon from September 24, 2007 to November 3, 2008 (13 months). Prices have been back over $3 since October 4, 2010 (31+ months).
The Institute of Supply Management reported that the Purchasing Managers' Index (PMI) fell to 50.7 in April from 51.3 in March. A PMI over 50 indicates growth while a PMI under 50 indicates contraction in the manufacturing sector of the economy. The index was steadily increasing from November through February, so the back to back declines in the last two months are disappointing. The first five months of 2012 showed strong growth (with a peak index of 54.8 in April 2012) but then the last seven months tapered off, hovering right around 50. This year started strongly and hopefully we are not seeing an earlier repeat of 2012’s fast start and slow finish. The index reached a low of 32.5 in December 2008 but then recovered more quickly than other areas of the economy. The vertical bars in the graph represent recessions.
Despite having several years to fine-tune CSA, the fact is, the system still fails to provide any measurement for most carriers on the highways. For most carriers that CSA does claim to measure, small sample sizes of roadside inspections undermine the validity of the scores. Finally, the system still brands over half of the carriers it does measure as being deficient on at least one BASIC.
Only 89,134 out of 786 thousand carriers in FMCSA’s dataset have a score on at least on BASIC. To be fair, only about 500 thousand carriers are active on the highways but that would still mean that less than 20% of carriers are measured. Only 330k carriers have had at least one roadside inspection in the last 24 months. Of the 89k carriers that are measured, 49k have a score on at least one BASIC that places them over the intervention threshold (an Alert or “Golden Triangle). That means 55% of all measured carriers are branded as questionable by the FMCSA, which is ludicrous when one considers the exceptional record of highway safety in the trucking industry.
Fleets with less than 50 trucks make up 99% of all trucking firms and account for 49% of all trucks on the highway according to data downloaded from the FMCSA website. For single truck carriers, two thirds have not had a single roadside inspection in the last two years and only 4% have had enough inspections to receive a score on even one BASIC. For fleets of 2-10 trucks about half have no inspection data at all and only 14.5% have a score.
Of those small carriers unlucky enough to be trapped in the CSA web, 67% of the single truck fleets and 59% of 2-10 truck fleets have at least one Alert. The reason for this is the faulty math of the FMCSA, not the actual safety performance of small fleets. Dr. James Gimpel of the University of Maryland published a study critical of the CSA methodology. One of his points was that most studies with sample sizes of less than 20 would not be published because the sample is too small to accurately represent true performance. Less than half of all carriers with a CSA score have had 20 or more roadside inspections entered into the system in the last two years. Notice I wrote “entered into the system”. Many clean inspections are not uploaded into the system meaning that small carriers, who are seldom inspected anyway, find it almost impossible to offset one or two negative inspections and as a result have poor CSA scores. As shown in the chart below, 18 thousand carriers, which is 28% of all carriers with only 5-9 inspections, have a score on at least one BASIC. Of those, 64% have an Alert. None of those carriers should even have a score.
CSA was originally designed to help the FMCSA prioritize its enforcement resources. It is a perfectly good system to be used in that way. In addition, many carriers tell me they benefit from the data they are receiving from roadside inspections that allow the carrier to enhance their safety programs and better manage drivers. However, CSA was not designed to be used by the shipping public as a mechanism to screen and credential carriers and it is totally inappropriate to utilize the system to aid in carrier selection. There are many exceptionally safe carriers that have high CSA scores and many other carriers with high accident frequency that have very good CSA scores.
Transport Capital Partners surveyed carriers on their use of electronic logging devices. For carriers with more that $25 million in revenues (around 200 trucks) 84% have either fully implemented or have partially implemented EOBRs. For smaller carriers only 29% have made similar commitments. Over 40% of the larger fleets have fully implemented EOBRs while less than 15% of smaller fleets have done so.
Usage is clearly on the rise. In a similar study a year ago 44% of all surveyed carriers were either not utilizing EOBRs or had considered them but not made the transition. In this year’s survey those groups dropped to 32% of respondents.
We believe that smaller carriers will accelerate adoption as the technology continues to decline in price and becomes more broadly accepted as standard operating practice in the industry. It is possible that by the time the EOBR mandate is finally in place, it will be a non-event as the vast majority carriers will have already adopted the technology.
Source: Transport Capital Partners, LLC
A federal appeals court unanimously rejected a challenge to the legality of the Federal Motor Carrier Safety Administration’s pilot program for cross-border trucking. The challenge was brought by the Teamsters and the owner operator group OOIDA and was supported by Public Citizen. The Teamsters argued that Mexican trucks moving freight into the US should be subject to the same environmental regulations that are imposed on trucks manufactured in Mexico and imported to the U.S. for use by U.S. companies. OOIDA challenged the FMCSA’s rule that a Mexican commercial drivers license and medical certificate were acceptable in the U.S. Both groups are simply trying to eliminate competition through regulation. The FMCSA and American Trucking Associations welcomed the ruling.
While legal battles are one aspect of the challenge, perhaps the more important challenge it to convince Mexican truckers that it is in their best financial interests to participate in the pilot program. I have written several posts on the very slow pace of participation in the program. The FMCSA has now approved the 11th carrier for the program and as of today, the FMCSA website reports that since inception there have been 2,668 crossings under the program. While these numbers remain short of the FMCSA’s targets of 46 carriers and 4,100 crossings, it appears that the program is gaining momentum in the real world – that is the world outside of Washington DC where freight actually gets picked up and delivered every day in spite of the regulatory onslaught on freight transportation.
It has to be noted that collectively, the approved carriers only operate 20 trucks in the cross-border service, but this still represents progress. One of the carriers, GCC TRANSPORTE SA DE CV, accounts for almost 75% of all crossings under the program.
John Larkin’s concluding slide in yesterday’s webinar with ZONAR is displayed below. You can view the entire presentation at the ZONAR website. John’s insights on the state of the industry and the economy are always illuminating, but I particularly enjoyed his conclusions in this presentation.