Archive for May, 2014

  • Diesel Fuel Prices

    Diesel prices decline for fourth straight week

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 0.9 cents to $3.925 per gallon on May 26, representing the fourth straight week of modest declines. Diesel prices had hovered around 5 cents below their 2014 peak of $4.021 from mid-March through the end of April, but prices have broken below this level in the past few weeks. Despite the recent downward trend, diesel prices remain 1.2% above their prior-year level as prices declined more rapidly through the second quarter of 2013. Diesel experienced a high but narrow pricing environment throughout 2013, fluctuating between the low of $3.817 on July 1 and the high of $4.159 on February 25. Although surging domestic energy production has prevented measurable price increases over the last few years, rising international demand for fossil fuels may eventually put upward pressure on diesel prices. The $4 per gallon level remains highly symbolic: if diesel remains below this level, fuel costs will mirror their 2013 levels. If prices rise above $4 the broader economy will be forced to absorb increased transportation costs. In 2012, diesel exceeded $4 per gallon for a total of 26 weeks but only exceeded that level for 8 weeks during 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 2013. 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 (43 months).

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  • Ocean Freight

    Ocean rates portray weaker pricing on West Coast

    - by Tom Sanderson

    The major shipping lines continue to have greater pricing power to East Coast ports than West Coast ports. Capacity has been slow to transition out of the Pacific keeping rates low. The Shanghai Containerized Freight Index (SCFI) for West Coast ports was $1,923 per FEU and to East Coast ports was $3,384 on May 23. Prior-year comparisons highlight the pricing disparity between the West Coast and East ports as West Coast rates are down $170 (8.1%) over 2013 and East Coast rates are up $130 (4.0%). The disparity has been fairly consistent over the past year, but prior-year comparisons have moderated. To the West Coast, rates have fallen $859 (30.9%) and to the East Coast have dropped $714 (17.4%) from the August 2012 peak. The SCFI reflects spot market rates for the Shanghai export container transportation market.

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  • Safety

    New medical examiner rules implemented over industry protests

    - by Tom Sanderson

    With all the other high-profile regulatory actions taken by the FMCSA, this one slipped through without being noticed by a lot of shippers, but rest assured that carriers are very concerned about the impact on capacity.

    From FMCSA’s website: “Alert -  All commercial drivers whose current medical certificate expires on or after May 21, 2014, at expiration of that certificate must be examined by a medical professional listed on the National Registry of Certified Medical Examiners.”

    If a driver does not have a valid and current medical certificate, they can not drive.

    On the surface it sounds reasonable enough and the ATA supports the overall initiative. The problem is there are not nearly enough medical examiners spread around the country who are on the Registry at this time. The ATA and OOIDA requested a 6-month delay to allow time for more medical examiners to be certified, but the FMCSA plowed ahead without regard for the impact on the nation’s supply chain.

    “The American Trucking Associations supports the registry as a way to ensure medical examiners serving the industry have a broad understanding of the challenges truck drivers face every day,” said Dave Osiecki, Executive Vice President and Chief of National Advocacy. “It is unfortunate, however, that FMCSA declined to take a more pragmatic approach to ensuring the registry was sufficiently populated by granting ATA’s request for a reasonable, short delay.”

    In the final rulemaking establishing the National Registry of Certified Medical Examiners (NRCME), FMCSA estimated a need of 40,000 medical examiners nationally to be certified in order to meet the annual needs to perform over 4.6 million driver physicals. FMCSA spokesperson Duane DuBruyne said May 17 that the registry has 21,600 examiners in the registry and is set to approve 4,000 more this week.

    There will eventually be enough certified examiners, but over the next few weeks or perhaps months, as drivers’ medical certificates expire there may be another disruption in trucking capacity.

  • Housing Starts, Sales, and Inventory

    Housing starts rise back above 1 million-unit annual pace

    - by Tom Sanderson

    Housing starts rose back above a 1 million-unit annual pace for the first time this year in April, coming in well above the consensus estimate at 1,072k (seasonally adjusted annual rate – SAAR). April’s figure represents an acceleration of the uptick in housing starts that commenced in February, rising 13.2% over the pace from March. The year-over-year change for starts returned to positive territory, surging 26.4% over the relatively weak comparison from April 2013. Single-unit starts were up 9.8% so the real surge was in multi-family structures. Coming into this year, many economists had anticipated that a surging housing sector would propel broader economic growth. Sever winter weather caused housing starts in the first quarter to underperform these expectations, but April’s strength provides hope that the housing sector will accelerate through the second half of the year. The estimate from the Census Department pegged total 2013 housing starts at 923k, a robust 18.3% above the 781k housing starts recorded in 2012. There remains a lot of ground for the housing sector to recover from the recession. Housing starts are still 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. 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. 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 results disappoint in April

    - by Tom Sanderson

    Seasonally adjusted real retail sales fell to $183.9 billion in April, a disappointing drop from March’s all-time high of $184.3 billion. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). Most analysts had expected a stronger rebound in retail sales growth following the winter weather that hindered the sector during the first quarter. Last month’s sales were 2.1% higher than the prior-year period. Despite April’s disappointing number, the relative strength of consumer confidence bodes well for retail sales in the coming months. Nominal (unadjusted for inflation) retail sales totaled $434.6 billion in April (second graph), representing a 0.1% gain over March and a 3.7% year-over-year improvement. March’s nominal figure had soared 1.5% over February’s unadjusted sales number. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Highway Funding

    Highway Bill update

    - by Tom Sanderson

    I had the pleasure of participating in a roundtable at the Capitol Building with Senators Carper (D-DE), Barrasso (R-WY), Blumenthal (D-CT) and Blunt (R-MO) on April 30 along with 7 other industry representatives. The topic was the needs of the freight industries in the next highway bill. MAP-21 expires on September 30 and there are a number of proposals for a new 4-6 year highway bill. In an election year, the most likely result is an extension of MAP-21, especially considering that the previous highway bill was extended 10 times over a three-year period.

    The roundtable exceeded my expectations. I found the Senators very willing to listen to the points of view being expressed around the table. The meeting was scheduled for one hour, but lasted almost twice that long.

    My primary point was that the federal gas and diesel taxes have not been raised since 1993 and have lost 62% of their purchasing power to inflation plus 14% to improvements in fuel economy. The result is that the taxes raise about $38 billion per year, but the federal government spends about $50 billion per year, drawing the excess from the already depleted General Fund. We built the entire Interstate Highway System (IHS) with a user fee system and that same principal should apply to its upkeep. The federal tax should be raised and indexed to inflation and fuel economy improvements, but also the public needs to be assured that this money will be spent repairing the IHS. The Senators would welcome the return of earmarks (there were none in MAP-21), but a better mechanism would be an iron-clad guarantee that the federal dollars be spent on nothing other than the IHS repair and maintenance with each state deciding how best to spend the money. If the federal government is going to play a role in allocating money to specific projects it could be done along the lines of the Base Realignment and Closure (BRAC) commission, to ensure that the bridges and highways most in need of repair are fixed first. Republicans could also demand a repeal of Davis-Bacon in exchange for supporting the tax increase. This 1931 prevailing wage law unnecessarily raises the cost of construction, is difficult to administer,

    and hampers competition. It does not seem likely at this point, but gaining truck productivity through an 88,000 pound GVW and the allowance of 33’ trailers in double combinations would be a nice offset to higher taxes.

    There has been a lot of noise about needing to shift to tolls or a vehicle miles tax (VMT) to compensate for rising fuel economy and the growing potential for electric vehicles. The numbers show that inflation, not fuel economy, is the primary cause of the shortage of funds. Fuel taxes encourage fuel economy improvements, which is a good thing, and also add to the other subsidies for electric cars. The fuel tax is very efficient to collect, unlike tolls and VMTs, and very hard to avoid. The trucking industry already has to report vehicle miles for state fuel tax collection, but do we really want to develop a system for capturing that data for the 250 million cars and light trucks on the road? It is certain that expansion of highway capacity will require tolls and public-private partnerships (PPPs). Tolling the existing IHS, as proposed by the Obama administration, is double taxation for roads that we already paid to build through user fees and currently pay to maintain through fuel taxes.

    I was pleased to see that Senator Carper announced his support for increasing the federal gas and diesel tax in the weeks after our roundtable. The American Trucking Association, the American Automobile Association, and the U. S. Chamber of Commerce all support increasing fuel taxes to fix our highways and bridges. The big question is, how do we convince the general public that the extra money raised will be spend repairing and maintaining the IHS?

  • Compliance, Safety, Accountability

    Department of Defense use of CSA/SMS in carrier selection is questioned

    - by Tom Sanderson

    The General Accounting Office (GAO) reviewed Defense Transportation’s handling of hazardous materials shipments. The GAO was critical of DOD’s reliance on CSA/SMS in carrier selection. DOD has strict requirements based on percentile scores on each BASIC in qualifying carriers for use on Hazmat shipments.

    The  report’s conclusions state that “DOD uses Safety Measurement System scores to determine safety performance of its Transportation Protective Services carriers. However, both our February 2014 report and the Federal Motor Carrier Safety Administration state that these scores should not be used to draw safety conclusions about a carrier’s safety condition. As a result, DOD may be determining which carriers should be eligible for the Transportation Protective Services program using the Compliance, Safety, Accountability’s Safety Measurement System that, for many carriers, lacks sufficient information to reliably assess carriers’ safety performance.” “To better ensure the safety and security of DOD’s shipments of sensitive arms, ammunition, and explosives, we recommend that the Secretary of Defense, in coordination with the Chairman of the Joint Chiefs of Staff, direct TRANSCOM to examine the data limitations of the DOT Federal Motor Carrier Safety Administration’s Safety Measurement System raised in our February 2014 report on modifying DOT’s Compliance, Safety, and Accountability program…”

    The report also recaps the flaws pointed out in the February GAO report. “In February 2014, we found that the Federal Motor Carrier Safety Administration faces challenges in reliably assessing safety risk for the majority of carriers. Among other things, most carriers lack sufficient safety performance data to ensure that Federal Motor Carrier Safety Administration can reliably compare them with other carriers using Safety Measurement System scores. Basing an assessment of a carrier’s safety performance on limited data may misrepresent the safety status of carriers, particularly those without sufficient data from which to reliably draw such a conclusion. In addition, previous evaluations of the Safety Measurement System have focused on estimating the correlations between crash risk and regulatory violation rates and Safety Measurement System scores. These evaluations have found mixed evidence that Safety Measurement System scores predict crash risk with a high degree of precision for specific carriers or groups of carriers. As we found, according to the Federal Motor Carrier Safety Administration’s own methodology, the Safety Measurement System is intended to prioritize intervention resources, identify and monitor carrier safety problems, and support the safety fitness determination process.
    Modifying the Compliance, Safety, Accountability Program Would Improve the Ability to Identify High Risk Carriers, The Federal Motor Carrier Safety Administration also includes a disclaimer with the publicly released Safety Measurement System scores stating that the data are intended for agency and law-enforcement purposes, and readers should not draw safety conclusions about a carrier’s safety condition based on the Safety Measurement System score, but rather the carrier’s official safety rating. Due to ongoing litigation related to the Compliance, Safety, Accountability program and the publication of Safety Measurement System scores, we did not assess the potential effects or tradeoffs resulting from the display or any public use of these scores. We recommended that DOT improve the Compliance, Safety, Accountability program by revising the Safety Measurement System methodology to better account for limitations in drawing comparisons of safety performance information across carriers; and in doing so, conduct a formal analysis that specifically identifies, among other things, the limitations in the data used to calculate Safety Measurement System scores including variability in the carrier population and the quality and quantity of data available for carrier safety performance assessments. According to federal internal control standards, for an entity to run and control its operations, it must have relevant, reliable, and timely communications, including operational data.”
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  • Auto Sales & Assemblies

    Auto sales hover at 16 million-unit annual pace

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks were 16.0 million in April, slightly below March’s pace of 16.3 million. March’s figure represented the fastest sales pace since February 2007. April’s figure is not a disappointment as March’s number was likely bolstered by delayed demand associated with the harsh winter. Year-over-year growth of our three-month moving average improved to 4.1% as January’s weaker sales volume dropped out of the average. As concerns about the growth pace of the broader economy have diminished, we expect the annual growth figure to continually improve over the next few months. The full-year sales total for 2013 was 15.6 million, a 7.3% improvement over 2012 and only 6.6% below the early decade (2001 – 2007) average of 16.7 million. The sales pace from last month remains 4.2% below the early decade average, proving there is still significant ground for the industry to recover. The recessionary low point for auto sales occurred during the first six months of 2009, when annualized sales averaged only 9.6 million units. Auto purchases represent a large chunk of the typical household budget, and the sales pace serves as a reliable barometer of consumer confidence. 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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  • Morgan Stanley Graphs

    Refrigerated capacity index falls from historic highs as weather improves

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index has fallen significantly from its record high over the past month, but remains above the longer-term trend. The dry van and refrigerated markets were both significantly affected by the extreme winter weather from Q1 that forced thousands of trucks to sit idle. The lack of any excess reefer capacity magnified the winter capacity crunch. The current trend indicates that the refrigerated market will likely return to its normal seasonality over the next few weeks. Refrigerated rates will likely continue to 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 future robustness of economic growth will not necessarily determine demand in this market. 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 in line with historical average

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index has exhibited a normal spring tightening that has closely mirrored the recent historical average. Due to the seasonality of the flatbed market, this sector was not significantly affected by this winter’s extreme weather like the dry van and refrigerated markets. The flatbed market is likely to remain close to normal seasonality unless the residential or commercial construction industries experience growth that outpaces the broader economy. Flatbed capacity was readily available throughout 2013 despite the increased oilfield production and uptick in housing starts. 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

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