Archive for January, 2014

  • Auto Sales & Assemblies

    Auto assemblies rise to highest level since 2005

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks finished 2013 on a strong note, climbing to 11.5 million in December (seasonally adjusted). Last month’s data point represents the highest rate of assemblies since October 2005. It is clear that domestic auto manufacturers are anticipating a good year for 2014 on the back of strong sales growth in 2013. Our graph is a three-month moving average of the seasonally adjusted annualized assemblies. Using this moving average, year-over-year percentage growth remained strong at 9.9%. 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, 5.3% above the average assembly rate for all of 2013, but 0.9% lower than the statistic from last month.

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  • Housing Starts, Sales, and Inventory

    Housing starts fall back under 1,000k annual pace in December

    - by Tom Sanderson

    Housing starts fell to a 999k annual pace (seasonally adjusted annual rate – SAAR) in December, a measurable drop from November’s 1,071k pace which had been the highest level since the start of the 2008 financial crisis. The early estimate from the Census Department pegs total 2013 housing starts at 923k, a robust 18.3% above the 781k housing starts recorded in 2012. Although December’s results did not significantly weaken the full-year gain, strong starts in December 2012 led to a weak 1.6% year-over-year gain for last month. Although some economists fear a slowdown in the housing recovery due to rising mortgage interest rates, the Fed’s cautious approach to “tapering” will likely afford a slow, gradual, and manageable rise in rates. 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. 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. 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.

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  • Retail & Same Store Sales

    Retail sales exhibited modest growth during holiday shopping season

    - by Tom Sanderson

    Seasonally adjusted real retail sales dipped to $184.1 billion in December, coming in slightly above consensus expectations and representing a modest 3.4% growth in sales growth over 2012. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). Early predictions about the 2013 holiday shopping season were categorically negative, and some retail chains did disappoint, but companies with mature e-commerce strategies propelled growth above the original estimates. Nominal (unadjusted for inflation) retail sales totaled $431.9 billion in December (second graph), representing a new all-time high and a 0.2% gain over November. Nominal sales grew 3.8% from December 2012. Fewer shopping days between Thanksgiving and Christmas, coupled with the numerous extreme winter weather events undoubtedly acted as headwinds for many retailers during the peak shopping season, but these effects were not significant enough to measurably stifle retail sales growth. 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 market suffers effects of winter weather

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload freight index indicates a market that has recently experienced record tightness. The prolonged bout of extreme winter weather across much of the nation has greatly impacted the the transportation industry at all levels over the past four weeks. The recent surge has undoubtedly been exacerbated by the decrease in utilization attributable to the Hours-of-Service rules changes. Improving weather patterns should bring capacity/demand balance back to normal levels over the next few weeks, but the recent surge was as surprising and significant as the tightening that occurred from February through April of 2011. The tepid pace of the economic recover through the first half of 2013 produced lackluster freight volumes as we expected, but the recent upswing may be sustained if the economic landscape continues to improve in 2014. 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 freight index surges to unprecedented level

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index has surged to unprecedented levels over the last four weeks, highlighting the effect of extreme winter weather and rising demand in a market already characterized by high capacity utilization. Refrigerated capacity closely mirrored its historical average throughout 2013, but this index started and ended the year at high levels. The current tightness bolsters the claim that the pricing environment in this segment continues to favor the carriers. Refrigerated rates will likely rise faster than the broader truckload market as no significant capacity is entering the industry despite steadily rising demand. Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so the robustness of economic growth does not necessarily determine demand for refrigerated transportation. 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 begins year at historical average

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index portrays an abundance of capacity that is typical for January. The flatbed index currently stands in stark contrast to the dry van and refrigerated indices that have both surged to record levels due to the extreme winter weather. Flatbed capacity was readily available throughout 2013, crossing slightly above its recent historical average for only a few weeks in September and October. With the upswing in housing starts and surging domestic oilfield production, it remains surprising that flatbed capacity never tightened as much in 2012 and 2013 as it did in 2010 and 2011. The flatbed market was particularly hard hit by the recessionary decrease 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

  • Housing Starts, Sales, and Inventory

    New home inventory falls, months of supply dips to lowest level since last March

    - by Tom Sanderson

    New home inventory fell for the second straight month in November after peaking at its highest level since February 2011 in September. The recent decline in inventory has held this metric relatively close to its historical low. Seasonally adjusted new home inventories fell to 4.3, the lowest level since last March. Prior to July of last year, the months of supply figure had been below 5 months since February 2012. In conjunction with rising housing starts, a return to this low months of supply level indicates there is increasingly healthy demand for new homes. Since the average months of supply over the last 50 years is 6.1, 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. If the months of supply figure moves upward or exhibits volatility, the housing sector may not be as strong as widely believed. But at this point, any significant growth in the rate of sales will quickly deplete the low absolutely inventory level and lead to a significant increase in housing starts (and freight). Housing starts increased measurably in 2013 over 2012, and sales have so far kept pace with the increase in construction. The vertical bars in the graphs represent recessions.

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  • Ocean Freight

    Ocean rates rise slightly after bottoming in December

    - by Tom Sanderson

    After declining for 37 out of 52 weeks last year, ocean rates began 2014 with a slight gain. The Shanghai Containerized Freight Index (SCFI) for West Coast ports was $1,815 per FEU and to East Coast ports was $3,137 per FEU on January 3. Both the West Coast and East Coast weekly gains were modest, but these figures represent 6.8% and 6.2% respective gains from the 2013 lows that were reached in mid-December. Prior-year comparisons highlight the disparate pricing moves between the West Coast and East Coast ports as rates to the West Coast are down $406 (18%) over 2012 and rates to the East Coast are only down $221 (7%). Competition among the major shipping lines remains more robust in the Pacific as these companies continually resist moving any measurable capacity out of the Pacific. To the West Coast, rates have decreased $967 and to the East Coast have fallen $961 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

  • Auto Sales & Assemblies

    Auto sales reached 15.6 million in 2013

    - by Tom Sanderson

    After surging to a six-year high in November, annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks fell back to a 15.3 million-unit annual pace in December. Using our three month moving average, this figure represents 2013’s slowest year-over-year growth at only 4.4%, reflecting both the unexpected weakness of December’s sales and stronger comparisons during the closing months of 2012. Abundant winter weather problems and rising interest rates likely acted as headwinds on auto sales in December. The preliminary full-year sales total reached 15.6 million, a 7.3% improvement over 2012 and only 6.6% below the early decade (2001 – 2007) average of 16.7 million. Last year represents the first time sales topped 15 million since 2007. 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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  • On-board Trip Recorders

    FMCSA dithers on issuing EOBR rule

    - by Tom Sanderson

    The MAP-21 highway bill signed in 2012 mandated electronic logging devices on trucks. Congress ordered that a rule be made available by October 1, 2013. In March of 2013, the FMCSA indicated it would miss that deadline but expected to propose a rule by the end of 2013. Now that timeframe has passed and the FMCSA’s  director of communications, Marissa Padilla, has stated that “We expect to publish the rule in the near future. It is currently at the Office of Management and Budget and we have no new updates on a specific date.” When pressed to narrow down the definition of “near future”, Ms. Padilla indicated that it meant sometime in 2014.

    As I mentioned in a post last year, it will take several years between the time a rule is proposed and the time when all large trucks have EOBRs installed. Also, as OOIDA points out, EOBRs are not foolproof as they only automatically record driving time, not all on-duty time, so cheaters will continue to cheat. However, it is time to get the ball rolling and make a significant, if not perfect, improvement in hours-of-service compliance through formal rulemaking that mandates EOBRs in large trucks. The American Trucking Associations strongly supports an EOBR mandate.

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