Weekly retail on-highway U.S. diesel prices fell an additional 0.7 cents to $3.952 per gallon on April 14, representing the fifth straight week of modest declines. Diesel prices have fallen 6.9 cents since reaching their 2014 peak of $4.021 on March 15. Diesel prices declined more rapidly through March and April of 2013 than the pattern so far this year, so the current price is 1 cent/gallon (0.3%) higher than the prior-year level. 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. Although surging domestic energy production has prevented measurable price increases over the last few years, rising international demand for fossil fuels may eventually put upward pressure on diesel prices. The $4 per gallon level remains highly symbolic: if diesel remains below this level, fuel costs will mirror their 2013 levels. If prices rise above $4 the broader economy will be forced to absorb increased transportation costs. 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 (42 months).
Stephens Inc. reported that LTL rates increased by only 0.8% in 2014. In Q4, LTL rates increased 0.6% from 2012 to 2013 but decreased sequentially from Q3-2013 by 0.4%. The index’s current level of 126.5 represents the second highest reading since Q1-2008. Stephens estimates that LTL rates will increase by 2.5-3% for the full year 2014. From their Q4-2007 peak level, LTL rates dropped 11.2% to their trough in 2010 and are now only 0.9% below the all-time high. Weight per shipment continued to rise 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 1.7% for the full year 2013 and 5.2% in Q4 compared to the same period last year. Despite the improving trends, the challenges facing LTL carriers remain apparent as the current pricing levels are equivalent to 2008 prices despite the realization of significant cost increases over that period. Some of the capacity issues that will impact the TL segment, like CSA and the new Hours-of-Service rules, are not as relevant to the LTL segment, but industry concentration and consolidation does provide LTL carriers 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.
The General Accounting Office (GAO) and Inspector General (IG) both released congressionally directed studies of Compliance Safety Accountability (CSA) and found numerous critical flaws with the system. Both studies can be accessed in their entirety from this post, but they are lengthy so I will highlight key conclusions.
The GAO report “Modifying the
Improve the Ability to
Identify High Risk Carriers” analyzes nearly 315,000 U.S.-based carriers that were under FMCSA’s jurisdiction and, with reasonable certainty, were active during the period from December 2007 through June 2011. GAO considered a carrier active during this period if it received a state or federal inspection, was involved in a crash, or reported the number of vehicles it operates to FMCSA. The GAO study corroborated many of the deficiencies we have reported over the years.
- The factors being measured cannot be correlated to safe driving: “Our analysis found that most of the regulations used in (Safety Measurement System) SMS were violated too infrequently over a 2-year period to reliably assess whether they were accurate predictors of an individual carrier’s likelihood to crash in the future. We found that 593 of the approximately 750 regulations we examined were violated by less than one percent of carriers. Of the remaining regulations with sufficient violation data, we found 13 regulations for which violations consistently had some association with crash risk in at least half the tests we performed, and only two violations had sufficient data to consistently establish a substantial and statistically reliable relationship with crash risk across all of our tests.”
- There is insufficient data on most carriers: “Most carriers lack sufficient safety performance information to ensure that FMCSA can reliably compare them with other carriers.” “About two-thirds of carriers we evaluated operate fewer than four vehicles and more than 93 percent operate fewer than 20 vehicles. Moreover, many of these carriers’ vehicles are inspected infrequently".” “Given that SMS calculates violation rates for carriers having a very low exposure to violations, such as operating one or two vehicles or subject to a few inspections, many of the SMS scores based on these violation rates are likely to be imprecise.”
- State-by-state variability means CSA is measuring where a company operated, not how safely it operates: “The frequency of an individual carrier’s inspections varies depending on where the carrier operates. States vary on inspection and enforcement practices. Some studies have shown that inspectors or law enforcement officers in some states cite vehicles for certain violations more frequently than in other states. Delays in reporting crash data to FMCSA, as well as missing or inaccurate data, can affect a carrier’s Crash Indicator SMS scores. These delays can vary by state.”
- Data sufficiency standards are inadequate: “For most BASICs, we found FMCSA’s data sufficiency standards too low to ensure reliable comparisons across carriers. In other words, many carriers’ violations rates are based on an insufficient number of observations to be comparable to other carriers in calculating an accurate safety score. Our analysis shows that rate estimates generally become more precise around 10 to 20 observations, higher than the numbers that FMCSA uses for data sufficiency standards.”
- CSA is ineffective at predicting individual carrier crash risk and is suspect even for its original purpose of allocating enforcement resources: “Overall, SMS is successful at identifying a group of high risk carriers that have a higher group crash rate than the average crash rate of all carriers that we evaluated. However, further analysis shows that a majority of these high risk carriers did not crash at all, meaning that a minority of carriers in this group were responsible for all the crashes. As a result, FMCSA may devote significant intervention resources to carriers that do not pose as great a safety risk as other carriers, to which FMCSA could direct these resources.”
GAO analyzed an alternative data sufficiency standard of at least 20 trucks or 20 inspections and eliminating safety event groups and found far more reliability of the scores in identifying at-risk carriers. Furthermore, GAO questioned the viability of FMCSA’s proposal to determine a carrier’s fitness to operate based on SMS scores.
“FMCSA officials told us the primary purpose of SMS is to serve as a general radar screen for prioritizing interventions. However, as discussed above, due to insufficient data, SMS is not as effective as it could be for this purpose. Further, if the same safety performance data used to inform SMS scores are intended to help determine a carrier’s fitness to operate, most of these same limitations will apply. According to FMCSA, the Safety Fitness Determination rulemaking would seek to allow FMCSA to determine if a motor carrier is not fit to operate based on a carrier’s performance in five of the BASICs, an investigation, or a combination of roadside and investigative information. However, basing a carrier’s safety fitness determination on limited performance data may misrepresent the safety status of carriers, particularly those without sufficient data from which to reliably draw such a conclusion.”
The IG study “Actions Are Needed To Strengthen FMCSA's Compliance, Safety, Accountability Program” was far more limited in scope. The study was coordinated with the GAO study to avoid duplication of effort. The IG report found fault with FMCSA’s lack of discipline in requiring carriers to update census information which is essential to measuring crashes per mile or per power unit. FMCSA has begun efforts to deactivate US DOT numbers for carriers that do not update census data. The IG was also critical of the Agency’s failure to fully implement the enforcement intervention process. Only 10 states had fully implemented the process at the time of the report. The other 40 states and DC are waiting on software and training which is not expected until May 2015. Since the primary purpose of CSA is to prioritize enforcement resources, it is disconcerting to find that so few states are in compliance and that improvement is not expected until 2015.
In between the release of these two reports, FMCSA released a study by the Volpe Center titled, “The Carrier Safety Measurement System (CSMS) Effectiveness Test by Behavior Analysis and Safety Improvement Categories (BASICs)”. This was widely seen as a weak attempt by FMCSA to contradict some of the GAO findings. This report is basically a rehash of the Agency’s data showing that “on average” carriers with higher SMS scores have higher accident frequency, but does nothing to dispute the incontrovertible evidence that CSA is unable to predict anything about the safety of an individual carrier.
What was originally designed to be a “general radar screen” to help prioritize FMCSA enforcement resources has very inappropriately become a guilty verdict in the mind of some shippers, who refuse to do business with carriers that have even one BASIC above the intervention threshold. When half of all carriers with a percentile ranking have at least one BASIC above the intervention threshold and there is absolutely no correlation between SMS scores and individual carrier accident frequency, this is simply wrong. It is harming our nation’s supply chain and doing nothing to improve highway safety.
Following the GAO study release, the American Trucking Associations, the Owner Operator Independent Drivers Association (OOIDA) and the group I chair Alliance for Safe, Efficient and Competitive Truck Transportation (ASECTT) have all called for removal of SMS scores from the FMCSA website. “Since scores are so often unreliable, third parties are prone to making erroneous judgments based on inaccurate data, an inequity that can only be solved in the near term by removing the scores from public view,” said Dave Osiecki, ATA executive vice president and chief of national advocacy.
Following a marked gain during the week that ended on March 14, ocean rates have fallen slightly during each of the last three weeks. The Shanghai Containerized Freight Index (SCFI) for West Coast ports was $1,808 per FEU and to East Coast ports was $3,262 per FEU on April 4. Rates to the West Coast continue to demonstrate significant weakness and volatility compared to East Coast rates. Competition among the major shipping lines remains more robust in the Pacific as these companies resist moving any measurable capacity out of the region, even as numerous dredging projects increase the capacity of many East Coast ports. Prior-year comparisons highlight the disparate pricing moves between the West Coast and East Coast ports as West Coast rates are down $494 (18.8%) over 2013 and East Coast rates are only down $192 (3.5%). To the West Coast, rates have fallen $974 (35.0%) and the the East Coast have dropped $836 (20.4%) from the 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
On the legal and regulatory front, the good news is that The U.S. Supreme Court refused the Owner-Operator Independent Drivers Association’s (OOIDA) request to hear its appeal from last July’s court rejection of OOIDA’s case against the federal cross-border trucking pilot program with Mexico.
Meanwhile the number of crossings continue to increase, but are limited to only a few small carriers. As of today, according to FMCSA’s web site, there are 13 carriers with operating authority, 10 permanent and 3 provisional. In addition there are three carriers pending approval, one of which is open for comments, Docket Number FMCSA-2011-0097 at www.regulations.gov. The approved carriers have completed 16,670 border crossings, but the vast majority of those have been made by two carriers as shown in the following table.
During the week of 3/24-3/30 there were 453 crossings by 55 vehicles. That would annualize to about 24,000 crossings per year. Well over half of all crossings to date have been at Otay Mesa, CA.
In the U.S., to qualify to haul hazardous materials, among other criteria, a carrier must score in the top 70% of all carriers on Vehicle Out-of-Service rate (<33.3%) and Driver Out-of-Service rate (<9.7%). Clearly the participating carriers are scoring much better than what would be required of hazardous materials haulers in the U.S.
While still growing at a slow pace, it is great to see some growth and to see the strong safety performance scores for carriers participating in the program.
Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks rose to 16.3 million in March, the highest level since February 2007. The March figure was likely bolstered by the backlog of demand associated with the prolonged bouts of winter weather in January and February that kept potential customers away from dealerships. The rebound has largely quelled concerns about a slowdown in the broader economy, indicating that macroeconomic weakness at the beginning of the year was primarily due to the weather. Year-over-year growth in our three month moving average improved to a modest 2.2% gain. We anticipate that sales growth will continue to accelerate through the second quarter, leading to higher year-over-year growth. 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. The sales pace from last month remains 2.4% below the early decade average. 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.
New home inventory edged up to 189k (seasonally adjusted) in February, the highest level since December 2010. Housing inventories have been slowly recovering from historic lows. February’s new home inventory was well above the prior-year level of 152k, but new home inventory still remains lower than almost any period from the last 46 years. The recent uptick in inventories that began last year follows a period throughout 2012 in which the absolute inventory of new homes remained within a fairly consistent range of 142k – 150k. Seasonally adjusted new home inventories rose to 5.2 months of supply in February, just slightly off the 2013 peak of 5.5 months that was reached in July. Prior to July 2013, the months of supply figure had remained below 5 months since February 2012. The average months of supply over the last 50 years is 6.1, so the housing inventory picture remains positive. For the 9-year period of 1997 through 2005, the inventory level averaged 4.1 months with relatively little volatility, despite the dot-com boom and subsequent recession, which causes some concern at this point. Still, any significant growth in the rate of sales will quickly deplete the low absolute inventory level and lead to a significant increase in housing starts (and freight). Housing starts are positioned to increase through the spring and summer; we anticipate that sales will keep pace with this increased pace of construction, thereby preventing a spike in new home inventory.The vertical bars in the graphs represent recessions.
The Institute of Supply Management reported that the Purchasing Managers’ Index (PMI) rose to 53.7 in March, a modest gain from February’s reading of 53.2. March’s result serves as additional evidence that the weakness experienced in December and January was caused by extreme winter weather. Fears about a significant slowdown in the broader economy have been largely put to rest. The index for new orders outpaced the wider index, suggesting a future acceleration in growth for manufacturers. The manufacturing sector exhibited great momentum throughout the second half of 2013 and it seems likely that this growth pace will resume with the arrival of spring. Robust growth at manufacturers helped propel the economy’s 4.1% and 2.6% expansions during Q3 and Q4. 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.
Housing starts remained essentially unchanged in February at an annual pace of 907k (seasonally adjusted annual rate – SAAR). February’s figure came in just slightly below January’s 909k but remained well off the post-recession peak of 1,101k that was reached in November. The year-over-year change for total starts entered negative territory for the first time since August 2011, falling 6.4% from February 2013. The estimate from the Census Department pegged total 2013 housing starts at 923k, a robust 18.3% above the 781k housing starts recorded in 2012. It is highly likely that housing starts faced headwinds related to severe winter weather like most other economic indicators in January and February; therefore, much importance is attached to the upcoming results from March. There is still a lot of ground for the housing sector to recover. 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. 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. 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.
Seasonally adjusted real retail sales increased slightly to $181.7 billion in February, rising slightly from January’s sales figure. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). Last month’s sales came in just 0.4% above the prior-year period. Despite the disappointing year-over-year gain, February’s results renewed optimism about the strength of the American consumer as sales came in above consensus expectations despite prolonged bouts of winter weather at the beginning of the month. Rising home values and moderately improved employment figures have driven increases in consumer confidence which is strongly correlated with growth in retail sales. Nominal (unadjusted for inflation) retail sales totaled $427.2 billion in February (second graph), representing a 0.3% gain over January and a 1.8% year-over-year improvement. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflation-adjusted figures.