Archive for August, 2013

  • Morgan Stanley Graphs

    Refrigerated capacity-demand balance similar to last year’s market

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index not only shows that capacity was more abundant for the first half of 2013 than it was during the same period in 2012, but also that the beginning of Q3 in 2011, 2012, and 2013 all exhibited relatively equivalent capacity tightness. Refrigerated capacity experienced its usual seasonal tightening 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 reach the levels of 2010 – 2012 through Q2. It is difficult to isolate an effect of the Hours-of-Service rules changes in the refrigerated market since the index has roughly mirrored its historical average. 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-demand balance parallels its historical average

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates the market has recently returned to its historical average. Despite experiencing its weakest year since 2009, flatbed capacity is now measurably tighter than it was during the year-ago period. Most recent years experienced capacity tightening during Q2, but 2013 has remained relatively flat. 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 remains tighter than last year

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload freight index indicates that capacity-demand balance has remained relatively unchanged through August, and is now tighter than both last year and its recent historical average. Capacity was easing from late March through early May, but crossed above its historical average in late July. In 2010 and 2012, capacity tightness peaked around the end of Q2, a trend that appears to hold this year. Recent years have exhibited readily available dry van capacity during the second half of the year. The perennial July capacity easing was historically small this year, most likely a measurable effect of the Hours-of-Service rules changes that began July 1. The estimated 2% – 3% reduction in effective capacity should remain 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

    New home inventories and months of supply move upward

    - by Tom Sanderson

    New home inventories rose to 171k in July (seasonally adjusted), the highest level since April 2011. The absolute inventory of new homes was fairly level throughout 2012, ranging from 142k to 150k. As our first graph shows, we still have lower inventory levels than at almost any period in the last 46 years. Inventories stood at 142k in the year-ago period. Seasonally adjusted new home inventories increased to 5.2 months of supply, a relatively steep rise from June’s adjusted 4.3. The months of supply figure had been below 5 months since February 2012. The average months of supply over the last 50 years is 6.2, so by this measure 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). New home starts are substantially 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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  • Auto Sales & Assemblies

    Auto assemblies fall from their 6-year high

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks came in at 10.3 million (seasonally adjusted) in July, the ninth straight month above a 10 million-unit annual pace, but the lowest level since January. Growth in assemblies took a pause in Q3-2012, but had been experiencing a steady recovery until last month. July’s data may indicate a similar growth pattern for assemblies this year. 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 dropped to 4.1%, a result not only of the decrease in July, but also stronger prior-year comparisons. 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.

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  • Retail & Same Store Sales

    Retail sales continue tepid growth pace in July

    - by Tom Sanderson

    Seasonally adjusted real retail sales edged upward to $181.93 billion in July, representing a new all-time high and a slight gain from June’s adjusted $181.87 billion. (Note that actual sales are deflated using CPI 1982 – 84 = 100). Year-over-year growth was 3.4%, a relatively normal figure for non-recessionary periods. Nominal (unadjusted for inflation) retail sales totaled $424.5 billion in July (second graph), the highest level ever recorded, representing growth of 5.2% over 2012. Although July’s sales figures were decent, they were not sufficiently robust to suggest a rapid acceleration in economic growth for the remainder of the year.The reason we focus on real retail sales is that the inflation-adjusted numbers are a better indicator of freight movement.

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  • Housing Starts, Sales, and Inventory

    Housing starts recover in July

    - by Tom Sanderson

    Housing starts increased to 896 thousand in July from a revised 846 thousand in June (seasonally adjusted annual rate – SAAR). June had been the lowest level for housing starts year-to-date. The 5.9% improvement from the prior month has renewed confidence that the housing recover remains on a steady pace. The annualized rate increased a healthy 20.9% over the year-ago period. Housing starts totaled 782k in 2012 up from 612k in 2011. Single unit structures totaled 591 thousand (SAAR) in July, just shy of June’s revised 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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  • Diesel Fuel Prices

    Diesel prices remain at steady level

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices rose slightly to $3.900 per gallon on August 19, representing the fifth straight week of relatively consistent prices. Over that period, prices have held steady between $3.896 and $3.915 per gallon. Diesel reached its 2013 peak of $4.159 on February 25 and currently remains 6.2% below that price level. Prices reached their 2013 low of $3.817 on July 1, indicating a high but relatively narrow pricing environment year-to-date. This week’s price represents a 3.1% decrease over the prior-year level as Q3-2012 experienced generally increasing prices. 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 exceeded $3 since October 4, 2010 (34+ months).

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  • Auto Sales & Assemblies

    Auto sales record strong year-over-year gain in July

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks totaled 15.7 million in July, just shy of June’s revised pace of 15.8 million. The annualized sales rate has exceeded 15 million units for the last 9 months. The National Automobile Dealers Association (NADA) has estimated that 2013 sales will total around 15.5 million units. Using our 3-month moving average, sales are up a healthy 10.3% from the prior year, representing an acceleration in the year-over-year trend compared to the previous five months. Monthly year-over-year growth fell to less than 10% from February through June of 2013 after exceeding 10% for every month from January 2012 through January 2013. Despite these consistent improvements, auto sales remain about 6% below the average annual sales of 16.7 million units from January 2001 to December 2007. Sales began their 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. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.

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  • Carrier Rate Graphs

    LTL rates rise 2.8% in Q2

    - by Tom Sanderson

    Stephens Inc. reported that Q2 LTL rates increased 2.8% from 2012 to 2013, and also rose sequentially from Q1 by a moderate 0.3%. Stephens maintained their estimate for a 3% increase for the full year in their LTL rate index. From the peak level in 2007 LTL rates dropped 11.5% to their trough in 2010. While rates have increased over the last three years, they still remain 2.4% less than peak rates in Q3-2007. Weight per shipment increased 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 decreased 0.5% in Q2 compared to the same period last year. The challenges facing LTL carriers are apparent as the current pricing levels are equivalent to 2006, despite significant increases in costs 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 consolidation does provide better pricing power than is the case for TL carriers.

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    Graphs reproduced with permission from Stephens Inc. For more information contact: Jack Waldo at jwaldo@stephens.com or Chris Glancy at chris.glancy@stephens.com.

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