Archive for September, 2013

  • Morgan Stanley Graphs

    Refrigerated capacity is slightly tighter than historical average

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index depicts a market that has edged slightly tighter than its recent historical average. Capacity was more abundant for the first half of 2013 than it was during the same period in 2012, and the beginning of Q3 in 2011, 2012, and 2013 all exhibited relatively equivalent capacity tightness. The seasonal Q3 tightening seems to have peaked earlier in 2013 than the previous two years. 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 remains 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 remains relatively unchanged

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index portrays a market that has been relatively consistent since July. Despite experiencing its weakest year since 2009, flatbed capacity is now measurably tighter than its historical average and the year-ago period. Most recent years experienced capacity tightening during Q2, but 2013 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 energy production, 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 steady pace of new home construction and a stronger manufacturing sector seem to be preventing a similar decrease this year. 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 tight for this time of year

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload freight index indicates that capacity-demand balance is tighter than normal for late September. Although the dry van market has experienced much tighter periods in recent years, seasonality is a significant consideration when analyzing the current market conditions. Capacity tightness 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 has repeated so far this year. Recent years have exhibited readily available dry van capacity during the second half of the year, but this trend has not occurred so far in 2013. 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 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

  • Diesel Fuel Prices

    Diesel prices fall 2.5 cents

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell to $3.949 per gallon on September 23 after hovering just under the $4 level for three straight weeks. Pressure on prices has eased not only due to American refineries running at the highest capacity ever for this time of year, but also an increasing export crude supply coming from Iran and Iraq. Diesel reached its 2013 peak of $4.159 on February 25 and currently remains 5.0% 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 3.4% decrease over the prior-year level as Q3-2012 experienced generally increasing prices through mid-October. 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 (35 months).

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  • Housing Starts, Sales, and Inventory

    Housing starts remain flat in August

    - by Tom Sanderson

    Housing starts edged upward to 891 thousand in August from a revised 883 thousand in July (seasonally adjusted annual rate – SAAR). Housing starts have improved from this year’s low point of 835k in June, but still remain well below this year’s peak rate of 1,005k that was recorded in March. The annualized rate improved a robust 19.0% over the year-ago period, although this figure has dropped over the past few months as sequential growth has slowed. Housing starts totaled 782k in 2012 up from 612k in 2011. Single unit structures totaled 628k (SAAR) in August, a healthy improvement from July’s 587k and the highest level since February. 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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  • Auto Sales & Assemblies

    Auto assemblies remain just shy of 11 million-unit annual pace

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks recovered in August to 10.9 million (seasonally adjusted), a significant rise from the disappointing July (revised at 9.8 million). Growth in assemblies took a pause in Q3-2012, but have experienced a steady recovery that continued unabated until July. The growth represented by August’s number have quelled the fear that Q3-2013 will mirror the disappointing growth of the prior-year period. 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 has softened to 2.9%, partly the result of a stronger prior-year comparison. 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 advance slightly in August

    - by Tom Sanderson

    Seasonally adjusted real retail sales rose at a moderate pace to $182.66 billion in August, representing a new all-time high and a slight gain from July’s $182.44 billion. (Note that actual sales are deflated using CPI 1982 – 84 = 100). Sales figures for the month were relatively lackluster and came in below the market consensus estimates. Year-over-year growth slowed to 3.1%, but this remains a relatively normal figure for non-recessionary periods. Nominal (unadjusted) retail sales totaled $426.56 billion in August (second graph), the highest level ever recorded, but only 0.2% above July’s number. This number represented growth of 4.6% over August 2012. August’s sales figures were not terrible, but they have spurred concern about the upcoming holiday retail season. Many analysts have predicted the slowest holiday sales growth since 2009. 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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  • Auto Sales & Assemblies

    Auto sales rise above 16 million-unit annual pace

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks rose to a 16.0 million-unit annual pace in August, the first time above this symbolic level since November 2007.  The National Automobile Dealers Association (NADA) had estimated that 2013 sales will total around 15.5 million units. If the same sales trend continues through the remainder of the year, this forecast will be proven overly conservative. Using our 3-month moving average, sales are up a healthy 10.9% from the prior year, representing a continued acceleration in the year-over-year growth trend. Monthly year-over-year growth rates fell to less than 10% from February through June of 2013 after exceeding 10% in every month from January 2012 through January 2013. The annualized sales rate is now just 4% below the early decade (2001 – 2007) average of 16.7 million. 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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  • Stifel Nicolaus Carrier Results

    LTL carriers experience deteriorating year-over-year gains in Q2

    - by Tom Sanderson

    Stifel Nicolaus (www.stifel.com) reported small year-over-year yield growth and but deteriorating operating ratios for publicly traded less than truckload (LTL) carriers in Q2. Decelerating yield gains may indicate that the segment has reached a plateau. The Stifel Industry Sector Snapshot for the LTL sector indicated year-over-year revenue per hundredweight (yield) increasing at an extremely low rate. Year-over-year yields for the LTL carriers have risen for thirteen straight quarters after six quarters of declining yields from Q4-2008 through Q1-2010. The pace of growth has greatly decelerated, raising concern that the sector may struggle to continue its growth streak next quarter. Year-over-year operating ratios deteriorated slightly to 95.3% from 94.7%, but improved relative to Q1 2013 and are still slightly above pre-recession levels. Weight per shipment decreased 0.1% during the quarter, but increased sequentially over Q1. Composite net income, excluding YRCW, was relatively flat with its year-ago figure.

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  • Stifel Nicolaus Carrier Results

    Stifel Nicolaus reports modest TL profit growth on decreasing yield gains

    - by Tom Sanderson

    Stifel Nicolaus (www.stifel.com) reported the thirteenth consecutive quarter of positive year-over-year yield and earnings growth for publicly traded truckload carriers in Q2. The Stifel Industry Sector Snapshot for the truckload sector showed a year-over-year gain of 1.3% in revenue per loaded mile excluding fuel surcharge. This growth pace represents a slowdown from the 2.3% gain in Q1, and also lower than the growth experienced in Q2-2012. It was a tough pricing market for the TL carriers from Q4 2006 through Q2 2010. Operating ratios improved sequentially from Q1, but deteriorated slightly from Q2-2012. Truck utilization improved 1.8% on a year-over-year basis and also rose sequentially over Q1. The net effect was a modest 4.2% growth in EPS over Q2-2012, but this was a substantial improvement over Q1’s EPS gain.

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    Graphs reproduced with permission from Stifel Nicolaus. For more information contact: JGLarkin@Stifel.com.

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