Archive for July, 2013

  • Mexico Cross Border Trucking

    More good news on US-Mexico cross-border trucking program

    - by Tom Sanderson

    On July 26, the Federal Motor Carrier Safety Administration (FMCSA) won both of the cases filed against the cross-border trucking program. In one case, the Owner-Operator Independent Driver Association (OOIDA) was joined by the Teamsters in appealing an April 2013 ruling against them arguing that a Mexican issued Commercial Drivers License (CDL) should not be accepted in the U.S. The court ruled that Congress had decided the Mexican CDLs would be accepted and that would not be overruled by the court. Judge Brett Kavanaugh on behalf of the three-judge panel wrote: “We therefore conclude that the pilot program allows Mexican truck drivers to use their Mexican-issued commercial drivers’ licenses.” The court cited a 2001 statute requiring the FMCSA to verify that each Mexican driver had proper qualifications “including a confirmation of the validity of the Licencia de Federal de Conductor”, or Mexican CDL, and a 2007 statute that said the Secretary of Transportation “will accept compliance with a corresponding Mexican law or regulation as the equivalent to compliance with the United States law or regulation.”

    OOIDA also argued in this case that Mexico’s drug testing program was inadequate and neither were its vision tests. Regarding the Mexican vision tests, the court stated “ … Mexican medical standards, some of which are more stringent than the American standards, would provide a level of safety at least equivalent to the American standards as a whole.” These arguments were also rejected, meaning the case will not be reheard. 

    In the second case, OOIDA argued that Mexican drivers were receiving substandard medical clearances because doctors in Mexico are not on the FMCSA’s National Registry of Certified Medical Examiners. This argument was also rejected, and is quite a stretch given that the Registry ruling will not take effect for U.S. carriers until July 2014.

    According to the FMCSA website, through July 7 there have been 4,320 crossings by 11 carriers. A twelfth carrier has been approved but has not moved any loads and according to Transport Topics, a 13th carrier will be approved – Sergio Tristan Maldonaldo, doing business as Tristan Transfer. There were 255 crossing the week of 7/1 to 7/7 which would annualize to more than 13,000 per year. Now that is some good news on this program!

  • Diesel Fuel Prices

    Diesel prices increase for fourth straight week

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices rose to $3.915 per gallon on July 29, representing the fourth straight week of gains. The recent price increases can be primarily attributed to the rising price of crude oil since June. Diesel reached its 2013 peak of $4.159 on February 25 and currently remains 5.8% below that price level. Prices fell sharply in the late spring and early summer of 2012, so this week’s price represents a 3.1% increase over the prior-year level despite the absence of a cyclical spring price rise this year. In 2012, diesel prices exceeded $4 for a total of 26 weeks, but have only exceeded that level for 8 weeks so far in 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 the last few months. 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 been back over $3 since October 4, 2010 (33+ months).

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  • Housing Starts, Sales, and Inventory

    New home inventories tick up as months of supply declines

    - by Tom Sanderson

    New home inventories ticked up again to 161k in June, the highest level since August 2011. The absolute inventory of new homes (seasonally adjusted) was fairly level throughout 2012 at 143k to 151k. As our first graph shows, we still have lower inventory levels than at almost any period in the last 46 years. Inventories were at 145k in the year-ago period. Seasonally adjusted new home inventories decreased to 3.9 months of supply, a slight decrease from 4.2, which was recorded in each of the last three months. June’s months of supply figure matches the current-year low recorded in January, which was the lowest point since October 2004. The average months of supply over the last 50 years is 6.2 so by this measure the housing inventory picture has vastly improved. 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. 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). New home starts are higher than last year, with inventory rising only modestly, indicating sales have been keeping pace with the increase in construction. The vertical bars in the graphs represent recessions.

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  • Ocean Freight

    Ocean rates continue to demonstrate pricing weakness

    - by Tom Sanderson

    After rising for a brief two-week period at the end of Q2, ocean rates have declined for the second straight week. The Shanghai Containerized Freight Index (SCFI) for West Coast ports was $1,979 per FEU and to East Coast ports was $3,293 on July 19. To the West Coast, rates are down $803 and to the East Coast down $805 since their August 2012 peak. Rates to the West Coast and East Coast have experienced respective 7.2% and 10.4% rises from their 2013 lows. Rates began to decline during Q3-2012, so prior-year comparisons have moderated, but last week’s readings remain below prior-year levels with the West Coast down $410 (17%) over the same period last year and the East Coast down $266 (7%). The SCFI reflects spot market rates for the Shanghai export container transportation market.

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    Source: Shanghai Containerized Freight Index – Shanghai Shipping Exchange , The Journal of Commerce, Transplace analysis

  • Auto Sales & Assemblies

    Auto assemblies continue to rise, reaching 6-year high

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks came in just shy of 11.0 million (seasonally adjusted) in June, the eighth straight month above a 10 million-unit annual pace and the highest monthly level since June 2007. Growth in assemblies took a pause in Q3-2012, but have since experienced a steady recovery. Our graph is a 3-month moving average of the seasonally adjusted annualized assemblies. Year-over-year percentage growth using the three-month moving average is relatively strong at 6.7%, but with stronger year-ago sales than previous years, the percentage growth rate has continued to slow. The auto industry has come a long way since assemblies bottomed at a 3.6 million-unit annual pace in January 2009. Average monthly seasonally adjusted assemblies were 11.4 million from January of 2001 through December of 2007.

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  • Safety

    Highway fatalities rise slightly, but remain well below historical levels

    - by Tom Sanderson

    Total fatalities in crashes involving large trucks (>10,000 pounds GVW) increased slightly in 2011 to 3,757, representing a 1.9% increase over 2010. Total fatalities declined to a record low of 3,380 in 2009. Large truck fatalities per 100 million vehicle miles traveled (VMT) rose to 1.41, the highest level since 2007, but still 38% lower than last decade’s average of 1.94. It is critical to view these recent statistics over the long-run, as the numbers from the last two years in no way diminish the tremendous improvements in safety made by the trucking industry over the last 35+ years. Despite a sharp increase in the number of VMT across this period, the absolute number of fatalities has significantly declined over the years. Fatalities per 100 million VMT have fallen from a 1979 peak of 6.15 to 1.41 in 2011, a stunning 77% decrease. We congratulate and thank the trucking industry for this remarkable achievement.

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    Despite a historical trend that exhibits a consistently higher fatal crash rate for large trucks than passenger vehicles, improvements over the last five years have nearly erased this safety gap. The prevalence of crashes has dramatically decreased for both types of vehicles, despite significant increases in total VMT for both large trucks and passenger vehicles. In 1979, the last year before trucking deregulation, the safety gap peaked at 2.4 fatal crashes per 100 million VMT. In 2009, the gap decreased to 0, but has since ticked back up to a still excellent 0.2.

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    Every highway fatality is a tragedy and all participants in the transportation industry should seek to reduce the frequency of fatal crashes. The current and historical data paints a picture of a trucking industry that has made great strides towards ensuring that America’s highways are continually made safer. The lack of science behind the new Hours-of-Service 34-hour restart rule and the clear lack of any correlation between CSA/SMS scores and accident frequency suggest that the current regulatory environment is focused more on the appearance of doing something to improve safety while ignoring the government’s own data which shows the substantial progress the industry is making on its own. Unfortunately, it will prove difficult to isolate the effects of these feel-good regulations from the safety improvements achieved by the competitive market. Regulators will undoubtedly claim responsibility for any future gains in highway safety, but the real heroes will continue to be the men and women of America’s trucking industry.

  • Morgan Stanley Graphs

    Refrigerated capacity parallels its historical average

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index shows that capacity was very tight at the start of 2013, but has since mirrored its recent historical average. This remains consistent with our view of the market. Refrigerated capacity is typically tight during the summer months. Given the extreme tightness of refrigerated capacity back in January, it is a relief to see the index did not quite reached the levels of 2010 – 2012 through Q2. Typically, capacity eases from mid-July through August and the index has dipped, but the Hours-of-Service changes could alter this historical trend. Furthermore, a strong produce harvest on the West Coast is fueling demand for refrigerated freight. The pricing environment in this segment continues to favor the carriers. No significant capacity is entering the industry, and demand for refrigerated transportation is less correlated to economic downturns than dry van or flatbed. The index measures incremental demand for refrigerated truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

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    Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity continues to be readily available

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index portrays a slight tightening over the last few weeks, but flatbed capacity continues to be more readily availability than the historical average. Despite experiencing its weakest year since 2009, flatbed capacity is now marginally tighter than it was during the year-ago period. During Q1 and Q2 of 2013, the flatbed market paralleled the abundant capacity of 2007 and 2009. With the uptick in housing starts and surging oil-field strength, it is surprising that flatbed capacity never did tighten as much in 2012 and into 2013 as it did in 2010 and 2011. The second half of the year typically experiences a sharp seasonal decline in the flatbed index, but the record low inventory of new homes may spur new construction and prevent the index from falling too significantly. The flatbed market was particularly hard hit by the fall off in housing starts, but gained ground in 2010 and 2011 with the growth in U. S. manufacturing. The index measures incremental demand for flatbed truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

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    Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    Dry van capacity is slightly tighter than the year-ago period

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload freight index indicates that capacity has loosened over the last two weeks, but is now slightly tighter than it was during the year-ago period. Dry van capacity is currently on par with its historical average. Capacity was easing from late March through early May, but has since returned to the longer-term average. In 2010 and 2012, capacity tightness peaked around the end of Q2, a trend that seems to have continued this year. Recent years have exhibited readily available dry van capacity during the second half of the year. It is too early to quantify the effects of the Hours-of-Service rules changes that began July 1, but the estimated 2% – 3% reduction in effective capacity may be manageable through the remainder of the year given the relatively modest volumes of freight. The tepid pace of the economic recovery through the first half of this year produced lackluster freight volumes as we expected. The index measures incremental demand for dry-van truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

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    Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Housing Starts, Sales, and Inventory

    Housing starts fall to lowest level of the year

    - by Tom Sanderson

    Housing starts decreased to 836 thousand in June from 928 thousand in May (seasonally adjusted annual rate – SAAR). Total starts fell to the lowest level since August 2012 and came in significantly below consensus expectations. Despite the disappointing figure, the annualized rate still increased 10.4% over the year-ago period. Housing starts totaled 782k in 2012 up from 612k in 2011. Single unit structures totaled 591 thousand (SAAR) in June, just shy of May’s figure. Total starts reached a low mark of 478k 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. The housing recovery has been a relatively bright spot in the economy over the past year, but rising mortgage interest rates may dampen the segment’s improvement. Since 1968, the U.S. population has grown from 200 million to over 300 million. Low housing starts not only impact transportation demand for building products but also for appliances, furniture, and other related items. One analyst estimates that each housing start generates 8 truckloads of freight. The vertical bars represent recessions.

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