Both reefer and van capacity have been tight for the last few months, with weather being a major contributor. Aside from the last few months, reefer equipment capacity has generally been tighter than van capacity for quite some time now. Thom Albrecht at BB&T Capital Markets believes that a shortage of refrigerated trailers is to blame. He points out that the national reefer fleet has grown just 3.4% since 2006 while reefer freight has grown by 20.4% over the same timeframe. Reefer carriers tend to be smaller and less well-capitalized than the large van carriers and thus find it harder to finance and take on the risk of the high capital costs of refrigerated trailers, resulting in a slower rate of capacity growth. The implication for shippers is that the pricing environment in the refrigerated sector does, and will continue to, favor the carriers.
One other interesting point Thom makes is that according to BB&T analysis, van loads have declined by 18% over the same 7-year time period. I am always suspicious of ATA data which shows truck loads at an all-time high. While the negative 18% figure seems quite high, I believe it is more accurate than the increase in truck freight touted by ATA.
Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks slipped to 15.2 million in January, a disappointing byproduct of prolonged periods of severe winter weather that kept consumers away from their local dealerships. Auto sales will likely rebound in the following months as delayed demand propels increased purchases. Year-over-year growth fell to 2.5%, the slowest growth rate since September 2010. The full-year sales total for 2013 was 15.6 million, a 7.3% improvement over 2012 and only 6.6% below the early decade (2001 – 2007) average of 16.7 million. Last year represented the first time sales topped 15 million since 2007. Auto sales began their dramatic recessionary slide in 2008. The low point for auto sales occurred during the first six months of 2009, when annualized sales averaged only 9.6 million units. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.
Annualized U.S. assemblies of autos and light trucks fell to 10.3 million in January (seasonally adjusted), significantly below December’s pace of 11.4 million. Despite the softer number in January, domestic auto manufacturers are still anticipating a good year for 2014 on the back of strong sales growth last year. Our graph is a three-month moving average of the seasonally adjusted annualized assemblies. Using this moving average, year-over-year percentage growth significantly decelerated, but remained positive at 5.9%. The auto industry has come a long way since assemblies bottomed at a 3.6 million-unit annual pace (not seasonally adjusted) in January 2009. Average monthly seasonally adjusted assemblies were 11.4 million from January of 2001 through December of 2007, 5.3% above the average assembly rate for all of 2013 and 10.7% above January 2014 assemblies.
After remaining at a stable price level for the three week period following the Chinese New Year, ocean rates declined modestly last week. The Shanghai Containerized Freight Index (SCFI) for West Coast ports was $2,041 per FEU and to East Coast ports was $3,363 per FEU on February 14. The most significant move in ocean rates so far this year occurred during the week that ended January 17 as prices spiked 11.6% to the West Coast and rose 6.2% to the East Coast. West Coast rates have risen 20.1% and East Coast rates have climbed 13.5% from the 2013 lows that were reached in mid-December. Prior-year comparisons highlight the disparate pricing moves between the West Coast and East Coast ports as rates to the West Coast are down $323 (14%) over 2013 and rates to the East Coast are only down $154 (4%). Competition among the major shipping lines remains more robust in the Pacific as these companies resist moving any measurable capacity out of the Pacific, even as numerous dredging projects increase the capacity of many East Coast ports. To the West Coast, rates have decreased $741 and to the East Coast have fallen $735 since their August 2012 peak. The SCFI reflects spot market rates for the Shanghai export container transportation market.
Source: Shanghai Containerized Freight Index – Shanghai Shipping Exchange, The Journal of Commerce, Transplace analysis
The Federal Motor Carrier Safety Administration (FMCSA) said that a new study, by the Sleep and Performance Research Center, Washington State University and Pulsar Informatics Inc., indicates its current restart rules in the hours-of-service (HOS) regulations are more effective at combating fatigue than prior rules. This conclusion was immediately rebuked by the American Trucking Associations (ATA) and Owner Operator Independent Drivers Association (OOIDA), as well as by several members of Congress.
The study involved 106 commercial drivers working for three carriers that provided 1,260 days of data from electronic log devices and wrist activity monitors. Drivers’ fatigue levels were measured three times per day by means of a Psychomotor Vigilance Test (PVT) and by means of subjective sleepiness scores. A truck-mounted lane tracking system measured lane deviation (variability in lateral lane position).
The drivers totaled 414,937 miles from January to July 2013. That would indicate that each driver averaged 329 miles per day, so it is clearly not a study of over-the-road drivers who are most impacted by the restart rule. In fact, only 36 of the drivers were over-the-road drivers, 44 were local drivers, and 26 were regional. By type of operation, only 3 were running in over-the-road van operations, 48 were intermodal, 32 were dedicated, 13 were flatbed, 7 were temperature controlled, and 3 were owner operators.
FMCSA said the study concluded that “drivers who began their work week with just one nighttime period of rest, as compared to the two nights in the updated 34-hour restart break: exhibited more lapses of attention, especially at night;
reported greater sleepiness, especially toward the end of their duty periods; and
showed increased lane deviation in the morning, afternoon and at night.”
The ATA immediately questioned the validity of the study. According to Transport Topics, “ATA said the study failed to evaluate the safety effects of the once-per-week restart restriction, commonly called the 168-hour rule, nor did it address the real-world safety implications of putting more trucks on the road during daytime hours, when more passenger vehicles are also on the road.” Dave Osiecki, ATA executive vice president and chief of national advocacy, said “While the study includes some findings favorable to certain portions of the new restart rule, the incomplete nature of the analysis and the lack of justification for the once-weekly use restriction is consistent with the flawed analyses that led the agency to make these changes in the first place.”
Rep. Richard Hanna, R-N.Y. was also critical, stating: “Considering the study arrived four months late, I expected a robust report, but the study is worthless.” He continued, “First, FMCSA is telling millions of truckers when they are tired, but the study only examined 100 truckers from three companies. In addition, the study’s narrow scope does not address perhaps the most serious issue that could change the entire outcome of the study – forcing truckers to work in the morning rush hour when roads are most congested and dangerous. This half-baked study only underscores the need to legislatively delay the rule and have GAO conduct an independent analysis of the study so we can get a credible account of what this rule will truly mean for the safety of truckers, commuters and businesses.”
OOIDA Executive Vice President Todd Spencer said, “Unfortunately this was a study that was sort of thrown together, but realistically we don’t think it’s representative of the industry that was supposed to be the beneficiary (or the victim depending on your point of view) of the new regulations. This was a really, really small sample size, only 106 drivers. And the majority of those drivers didn’t even run over the road. Obviously that is where the 34-hour restart provision was supposed to have an impact. I’m skeptical that you can extrapolate any conclusion from this to the broader population of truck drivers.”
Common sense would lead one to conclude that putting more trucks on the road in morning rush hour would lead to more crashes, not fewer. In addition, the decline in driver productivity means more new drivers need to be recruited and hired, and they are not likely to be as safe as the experienced professional truck drivers on the road today. It also seems obvious that a professional truck driver is better equipped than Washington bureaucrats to decide what time of day he or she needs to sleep.
Weekly retail on-highway U.S. diesel prices rose 4.7 cents to $3.951 per gallon on February 3, the highest level since last September. Diesel prices rose dramatically in the New England and Central Atlantic regions as home heating oil inventories plunged due to prolonged bouts of extremely cold temperatures. Despite the rise in prices over the last two weeks, diesel is still 7.1 cents below the price from the same period last year. Diesel experienced a high but narrow pricing environment throughout 2013, fluctuating between the low of $3.817 on July 1 and the high of $4.159 on February 25. Prices rose steadily from the beginning of 2013 through the end of last February, so it will be interesting to see if 2014 diesel prices exhibit a similar inflection point. Although surging domestic energy production has prevented measurable price increases over the last few years, surging international demand for fossil fuels will eventually put upward pressure on diesel prices. In 2012, diesel exceeded $4 per gallon for a total of 26 weeks but only exceeded that level for 8 weeks during 2013. The recessionary low price point for diesel was $2.023 on March 16, 2009. A view of weekly prices over the last 4+ years exhibits generally higher prices in each year over the preceding year until 2013. Diesel prices peaked at $4.771 per gallon in July 2008 and were above $3 per gallon from September 24, 2007 to November 3, 2008 (13 months). Prices have exceeded $3 since October 4, 2010 (40 months).
The Institute of Supply Management reported that the Purchasing Managers’ Index (PMI) decreased to 51.3 in January, a significant drop from December’s 56.5. The manufacturing index exhibited robust growth throughout the second half of 2013, but the sector’s weakness last month has reinvigorated concerns about the pace of economic growth heading into 2014. Factory purchasing managers reported a sharp decline in orders through January indicating that manufacturing growth may stagnate for the next few months. The manufacturing sector helped propel the economy’s respective 4.1% and 3.2% expansions during Q3 and Q4. Many economists had anticipated a continuation of this trend, so estimates for Q1 GDP growth may prove overly optimistic. PMI over 50 indicates growth while a PMI under 50 represents contraction in the manufacturing sector of the economy. 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.
Seasonally adjusted real retail sales dipped to $184.1 billion in December, coming in slightly above consensus expectations and representing a modest 3.4% growth in sales growth over 2012. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). Early predictions about the 2013 holiday shopping season were categorically negative, and some retail chains did disappoint, but companies with mature e-commerce strategies propelled growth above the original estimates. Nominal (unadjusted for inflation) retail sales totaled $431.9 billion in December (second graph), representing a new all-time high and a 0.2% gain over November. Nominal sales grew 3.8% from December 2012. Fewer shopping days between Thanksgiving and Christmas, coupled with the numerous extreme winter weather events undoubtedly acted as headwinds for many retailers during the peak shopping season, but these effects were not significant enough to measurably stifle retail sales growth. The reason we focus on real retail sales is that the inflation-adjusted numbers are a better indicator of freight movement.
Annualized U.S. assemblies of autos and light trucks finished 2013 on a strong note, climbing to 11.5 million in December (seasonally adjusted). Last month’s data point represents the highest rate of assemblies since October 2005. It is clear that domestic auto manufacturers are anticipating a good year for 2014 on the back of strong sales growth in 2013. Our graph is a three-month moving average of the seasonally adjusted annualized assemblies. Using this moving average, year-over-year percentage growth remained strong at 9.9%. The auto industry has come a long way since assemblies bottomed at a 3.6 million-unit annual pace (not seasonally adjusted) in January 2009. Average monthly seasonally adjusted assemblies were 11.4 million from January of 2001 through December of 2007, 5.3% above the average assembly rate for all of 2013, but 0.9% lower than the statistic from last month.
Housing starts fell to a 999k annual pace (seasonally adjusted annual rate – SAAR) in December, a measurable drop from November’s 1,071k pace which had been the highest level since the start of the 2008 financial crisis. The early estimate from the Census Department pegs total 2013 housing starts at 923k, a robust 18.3% above the 781k housing starts recorded in 2012. Although December’s results did not significantly weaken the full-year gain, strong starts in December 2012 led to a weak 1.6% year-over-year gain for last month. Although some economists fear a slowdown in the housing recovery due to rising mortgage interest rates, the Fed’s cautious approach to “tapering” will likely afford a slow, gradual, and manageable rise in rates. Total starts reached a low point of 478k (SAAR) in April of 2009, while single unit starts bottomed out at 353k in March of 2009. Housing starts still remain far below the average of just over 1.5 million per year over the last 40+ years, and even farther below the 2.2 million peak of the most recent housing boom. Since 1968, the U.S. population has grown from 200 million to over 300 million. A low housing starts figure not only impacts transportation demand for building products but also for appliances, furniture, and other related items, so continued improvement in the housing sector should lead to rising freight volumes. One analyst estimates that each housing start generates 8 truckloads of freight. The vertical bars represent recessions.