Archive for November, 2013

  • Retail & Same Store Sales

    Retail sales notch gain ahead of holiday shopping season

    - by Tom Sanderson

    Seasonally adjusted real retail sales grew to $183.1 billion in October, hitting a new all-time high and recovering nicely from September’s weaker sales figure. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). The recovery from September was particularly surprising given the expectation that the federal government shutdown would act as an economic headwind during the start of the fourth quarter. Year-over-year growth fell to 2.2% due to a relatively strong prior-year comparison. Nominal (unadjusted) retail sales totaled $428.1 billion in October (second graph), also representing a new all-time high. The nominal statistic indicates a moderate 0.4% sales gain from September and 3.9% growth over October 2012. The surprising strength of the October sales figures has renewed hopes for a strong holiday shopping season since any effects of the government shutdown have largely dissipated. Before the release of the October data point, many retail analysts had forecasted 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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  • 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 is tighter than the year-ago level and its recent historical average, albeit only by the slimmest of margins. The dry van market experienced its tightest October in recent memory, but the index has recently dropped slightly below its 2010 and 2011 levels. Seasonality is a significant consideration when analyzing the current market conditions. Capacity tightness was easing from late March through early May, but has remained above the historical average since late July. In 2010 and 2012, capacity tightness peaked around the end of Q2 just as it did in 2013. Recent years have exhibited readily available dry van capacity during the second half of the year, but this trend has lessened so far in 2013. The perennial July capacity easing was historically small this summer, 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

  • Morgan Stanley Graphs

    Refrigerated capacity mirrors historical average

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index depicts a market that closely mirrors its recent historical average. Capacity was more abundant for the first half of 2013 than it was during the same period in 2012, then the 2012 and 2013 lines converged, but now the index is measurably below the year-ago level. 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 this year. 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 and has experienced year-over-year weakness. The pricing environment in this segment continues to favor the carriers as no significant capacity is entering the industry, and demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight. 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 is readily available

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates readily available capacity as we progress towards the end of the year. The flatbed market became tighter than its recent historical average for most of September and October, but the recent weakness has brought the index back under the normal end-of-year level. Despite the index’s recent decline, the flatbed market remains marginally tighter than the same period last year. The fourth quarter is typically the period during which flatbed capacity is most abundant.  With the uptick in housing starts and surging energy production, it remains rather surprising that flatbed capacity never did tighten as much in 2012 and 2013 as it did in 2010 and 2011. The flatbed market was particularly hard hit by the fall off in housing starts, but gained ground in 2010 and 2011 with the resurgence of the American manufacturing sector. 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

  • Auto Sales & Assemblies

    Auto assemblies fall from 7-year high

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks fell to 10.8 million (seasonally adjusted) in October, a significant decrease from September’s 11.3 million. September’s figure represented the highest rate of assemblies since April 2006. In all likelihood, the slowing growth pace in the auto sector is partially due to the federal government shutdown that occurred in October.  Our graph is a 3-month moving average of the seasonally adjusted annualized assemblies. Using this moving average, year-over-year percentage growth soared to 13.0% as August through October of 2012 was a particularly weak period for auto assemblies. 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, 6.5% above the average pace so far this year.

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  • Ocean Freight

    Ocean rates jump after eight weeks of decline

    - by Tom Sanderson

    After falling for the previous eight weeks, ocean rates jumped last week. The Shanghai Containerized Freight Index (SCFI) for West Coast ports was $1,885 per FEU and to East Coast ports was $3,184 per FEU on November 15. West Coast rates spiked 8.9% last week compared to a more modest 3.3% rise for East Coast rates. Last week’s imbalanced pricing moves were actually a good sign, as East Coast ports have experienced greater price stability than West Coast ports so far this year since shipping lines have continued to resist moving any capacity out of the Pacific. Despite last week’s improvement, prior-year comparisons continue to highlight the significant disparity between the two averages: rates to the West Coast are down $335 (15%) over 2012 and rates to the East Coast are down only $62 (2%). To the West Coast, rates have decreased $897 and to the East Coast have fallen $914 since their August 2012 peak. 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

  • Carrier Rate Graphs

    LTL rates increase 1.3% in Q3

    - by Tom Sanderson

    Stephens Inc. recently reported that Q3 LTL rates increased 1.3% from 2012 to 2013 and also rose sequentially from Q2-2013 by a relatively strong 1.7%. Q3 of 2012 also showed a sharp increase over the prior quarter. The index’s current level of 127.3 represents the highest reading since Q1-2008. Stephens maintained their estimate of a 3% increase for the full year. From their Q3-2007 level, LTL rates dropped 11.5% to their trough in 2010 and are now only 0.8% below the all-time high. Weight per shipment continued their 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 3.1% in Q3 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 2006 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 consolidation does provide LTL carriers 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.

  • Carrier Rate Graphs

    TL rates rise 1.7% in Q3

    - by Tom Sanderson

    Stephens Inc. released their Q3-2013 update on publicly traded TL carriers reporting that rates per loaded mile excluding fuel surcharge increased a modest 0.9% sequentially from Q2-2013 and rose 1.7% over the same period last year. Last quarter marked the fourteenth consecutive quarter of year-over-year rate increases and a slight increase from the 1.5% gain experienced in Q2. Stephens revised downward their full-year rate outlook in August to 1.5% – 2.5%, and they are now warning that rates will likely come in at the low end of this range. Rates will likely maintain modest growth in Q4 and are expected to pick up early next year as TL companies seek higher rates during bid season due to the utilization constraints caused by the new Hours-of-Service rules. The data and projections do not necessarily represent the entire TL industry as the publicly traded carriers tend to be larger and more successful in general, so are also more likely to successfully raise rates. Average length of haul has experienced a steady decline since 2002, falling further from 616 miles in Q2-2013 to 605 miles in Q3-2013. Shorter hauls not only increase revenue per mile without necessarily indicating price increases, but also lead to lower equipment utilization that can be detrimental to driver wages and carrier financial performance. It remains to be seen if the broader U.S. economy will grow faster than the 2.8% GDP growth achieved in Q3, but a growth rate above 3% would likely spur higher TL rate increases next year. 

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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.

  • Auto Sales & Assemblies

    Auto sales maintain 15.2 million-unit annual pace

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks remained at a 15.2 million-unit annual pace in October. The auto industry seemed poised to finish 2013 on a high note when the sales pace crossed over 16.0 million in August, but that data point seems to have been an outlier. Using our three-month moving average, sales are up 6.7% from the prior year. The annualized sales rate remains 9% below the early decade (2001 – 2007) average of 16.7 million, and October’s lackluster result bolstered the claim that the auto industry is unlikely to realize the necessary growth to rise above the pre-recession sales level before the end of 2014. 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. 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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  • Hours of Service

    Update on Hours of Service

    - by Tom Sanderson

    Now that we are a few months beyond implementation of the new Hours of Service (HOS) rules, I want to provide a look at the impact and also some recent legislative developments. The original estimates of a 2-3% reduction in fleet productivity have been confirmed with some notably higher exceptions. Derek Leathers, president of Werner Enterprises stated that productivity was down 2-3% overall but 6% for team drivers. Steve Gordon, CEO of Gordon Trucking, speaking at the same conference, did not specify a percentage decline in productivity but did say the new rules are costing drivers money and increasing turnover. A 3% productivity decline would necessitate hiring 100k new drivers, based on an estimated 3.5 million drivers with commercial licenses.

    According to the American Transportation Research Institute (ATRI) HOS is the number one concern of fleet operators, replacing CSA/SMS which led the list of concerns last year. HOS had been the second highest area of concern each of the last two years.

    The FMCSA has been carving out exemptions to the new rules for certain types of fleets. Short haul and munitions drivers are exempted from the new 30-minute rest break rule. The Agency is also considering exempting haulers of live animals and concrete from the rest break rules. None of this will help the regional and long-haul trucking industry.

    The one positive development is that bi-partisan legislation has been proposed in the House that would role back HOS rules until a GAO study is completed auditing the Agency’s methodology in coming up with the new rules . This is a long shot, but it is at least encouraging to see that a similar effort was successful regarding sleep apnea. The FMCSA had intended to issue “Guidance” on sleep apnea, but bipartisan legislation passed the House and Senate unanimously and was signed into law by President Obama on October 15 mandating that the FMCSA conduct full rulemaking with a public comment period rather utilizing the less formal guidance to put rules in place that could have cost the industry an $1 billion.

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