Archive for June, 2014

  • Housing Starts, Sales, and Inventory

    Housing starts remain just above 1 million-unit annual pace

    - by Tom Sanderson

    Housing starts remained just above a 1 million-unit annual pace in May at 1,001k, a somewhat disappointing drop from April’s 1,071k (seasonally adjusted annual rate – SAAR). May’s year-over-year growth was strong at 9.4%, but down sharply from April’s robust 26.3% improvement over the prior year. Economists were largely disappointed by May’s data point, but still maintained their estimates for robust growth in the housing sector for the second half of the year. According to Morgan Stanley, the flatbed truckload market has tightened significantly over the last few weeks, serving as a leading indicator of strength in the construction industry. Coming into this year, many economists had anticipated that a surging housing sector would propel broader economic growth, but the sector has not fully lived up to these expectations. Severe winter weather was a notable headwind that plagued the housing industry and the broader economy during the first quarter. 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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  • Morgan Stanley Graphs

    Dry van index continues to rise as demand remains strong

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index portrays a market that has remained much tighter than its recent historical average after easing in May. Steadily rising demand, coupled with several supply interruptions have prevented the dry van market from fully normalizing after the winter weather spike from the first quarter. Demand has been further bolstered by fears about the potential West Coast port strike, compelling shippers to pull forward some shipments. A measurable supply shortfall was spurred by the June 3 –5 road check that led some drivers to stay off the road to avoid potential inspections. Furthermore, carriers are still adjusting to the 3%-5% effective capacity reduction under the new Hours-of-Service rules that are approaching their first anniversary on July 1. The tepid pace of the economic recovery through the first half of 2013 produced lackluster freight volumes as we expected, but the recent upswing may not completely fade if the economic landscape continues to improve through the rest of the second quarter. 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 tightens due to delayed produce shipping season

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index has rebounded from its 2014 bottom due to capacity tightness caused primarily by the delayed produce shipping season. Severe weather delayed harvests in numerous regions, thereby postponing demand for refrigerated transportation. Morgan Stanley is predicting that this backlog will reverberate through the rest of the summer. The refrigerated index rose to historic levels throughout the first quarter as severe winter weather caused thousands of trucks to sit idle. The lack of excess reefer capacity significantly magnified the winter capacity crunch. 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 index breaks above historical average

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index has tightened significantly over the last few weeks after mirroring its recent historical average for most of this year. The recent surge may be a leading indicator of stronger growth in the residential and/or commercial construction industries. Housing starts and commercial construction growth has softened this year, so any sign that these metrics could soon improve bodes well for the strength of the broader economy. The recent upward move appears similar to the surge that occurred during June and July of 2011 when the flatbed market approached record capacity tightness. 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

  • Diesel Fuel Prices

    Diesel prices decline 1 cent for a seventh straight weekly drop

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 1.0 cent to $3.882 per gallon on June 16, representing the seventh straight weekly decline. Diesel is now at its lowest price level since January, but the recent outbreak of violence in Iraq has put upward pressure on crude oil prices. If the conflict in Iraq persists, measurable increases in both domestic diesel and gasoline prices will occur. Although surging domestic energy production has made the United States less dependent on foreign oil imports, the market price for crude oil is still deeply impacted by OPEC supply. Rising international demand for fossil fuels may also eventually put upward pressure on domestic diesel prices. Despite the continued trend of declining prices, diesel remains 1.1% above its 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. Diesel prices have remained within these 2013 limits so far this year. The $4 price level remains highly symbolic: if diesel remains below this level, fuel costs will mirror their 2013 numbers. If prices rise above the $4 mark, 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 reached that level for 8 weeks during 2013. The recessionary low price point for diesel was $2.023 in March 2009. A view of weekly prices over the last 6 years exhibits generally higher prices each subsequent year until 2013. Diesel prices peaked at $4.771 per gallon in July 2008.

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  • Auto Sales & Assemblies

    Auto sales surge to 16.7 million-unit annualized pace

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks were 16.7 million in May, the highest level since prior to the Great Recession. The sales pace is now equivalent with the early decade average (2001 – 2007) that has served as our primary barometer of the auto industry’s recovery. Auto sales remain well below their all-time high, indicating there is still room for the industry to grow. Year-over-year growth for our three month moving average improved to 6.9%, the largest gain since August of last year. The full-year sales total for 2013 was 15.6 million, a 7.3% improvement over 2012 and 6.6% below the early decade average (16.7 million). 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 portion of the typical household budget, and improving auto sales is directly correlated to rising confidence among American consumers. 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

    Don’t let the 82-hour workweek spin confuse you

    - by Tom Sanderson

    As the battle over hours-of-service (HOS) heats up over the next few weeks, you will see newspapers, magazine articles, congressional representatives, safety advocates and others disparage the efforts of some in Congress to suspend the 34-hour restart provisions for a year and force the FMCSA to rely on sound science in setting HOS rules. The headlines will often include a statement that suspension proponents want to “restore the 82-hour workweek” for truck drivers. That’s baloney.

    Driver logs are incredibly complicated and over-the-road truck driving is a very hard job that does include a lot of hours and a lot of time away from home. It is not an 82-hour work week and I want to explain how that figure is derived.

    Theoretically, if a driver works 14 hours (11 driving) and then takes 10 hours off, as both current and former HOS rules allow as the maximum on-duty shift, then in a span of 5 days the driver will have worked 70 hours out of 120 consecutive hours in the 5-day period. Both the current and former HOS rules limit a driver to no more than 70 on-duty hours in an 8 day period, so you may think the driver needs 3 days off, but that is not the case. The 34-hour restart means that once the driver has rested for 34 hours, the 70-hour clock is reset and the driver can resume work. The new rules modified the restart provisions to require that there must be two consecutive 1 AM to 5 AM time slots within the 34 hours and that the restart can only be used once in any 168 hour (7 day) rolling time period.

    Prior to those changes, in a theoretical world, at the conclusion of the 5-day 70-hour cycle, the driver would begin working again after 34 hours of rest and could then repeat this same perfectly synchronized schedule in perpetuity. The way the math works out, over the course of a month, in 5 out of every 6 days the previous 7 days would include 84 on-duty hours and in 1 out of every 6 days the previous 7 days would include 70 on-duty hours and if you apply the weighted average you end up with an 82-hour week. There was nothing in the rules that said a driver could drive 82 hours per week, it was just theoretically possible to average that amount without violating the 70-hour rule. The one reset per 168 rolling hours provision means that a driver could never legally run more than 70 hours in a week.

    The problem with this 82-hour theoretical workweek is that freight does not move on that reliable a schedule. If the first cycle began at 8:00 AM on Monday, the 70 hours are up at 8:00 AM on Saturday and the extra 24 hours of rest (to hit 34) are up at 8:00 AM on Sunday. After another 70 hours it is 8:00 AM on Friday and the extra 24 hours of rest are up at 8:00 AM on Saturday. There is simply no way that freight would be available on this exact a schedule to keep a driver running in this pattern. Even Administrator Ferro admits that the vast majority of trucking companies did not hit the 70-hour limit under the old or new rules, citing an ATRI study that only one-third of one percent of 40,000 logbooks studied were affected by the rule.

    So exactly what problem is the FMCSA attempting to solve with the new restart rules. By putting a straightjacket on drivers, dictating that they must have two consecutive days with a 1 AM to 5 AM break and limiting drivers to only be able to begin the reset period once every seven days, the FMCSA is telling a driver when he must rest, rather than allowing him to rest when he is tired or to reset when he needs to reset, or when there is no freight available to haul. The reset rules are not based on sound science and the claim that opponents of the new rule want to go back to 82-hour work weeks is pure demagoguery.

    Driving a truck is a demanding profession, but it is not an 82-hour per week job and nobody is arguing that it should be. The argument is simply that professional drivers need to be able to manage their rest periods within reasonable rules. The reset rules are not based on hard data and analysis and they are pushing drivers onto the road in morning rush hour traffic. That is not a recipe for better highway safety. Better enforcement of the HOS rules through electronic logging devices, cracking down on speeding violations, and limiting truck speeds as suggested by the ATA will do far more to reduce highway accidents.

  • Safety

    A very high profile crash

    - by Tom Sanderson

    The tragic loss of James McNair’s life, who performed under the name Jimmy Mack, and critical injuries in the New Jersey crash involving a Walmart truck and comedian Tracy Morgan’s limo bus will generate a tremendous amount of publicity and public comment in the coming weeks. There will be a great deal of misinformation about highway safety, Walmart, and hours-of-service regulations. I want to echo the words of Bill Graves, chairman of the American Trucking Associations, who said “First, as always, our thoughts are with the victims of this tragedy and their families. Every crash on our highways is a tragedy and that’s why the industry places safety as our highest priority."

    I also believe it is important that Walmart, the trucking industry, and professional truck drivers not get falsely denigrated as being dangerous or lacking a sufficient focus on highway safety and it is important to recognize that this accident had nothing to do with hours-of-service regulations.

    According to the FMCSA, Walmart operates 6,239 power units, has 7,222 drivers and ran 667 million miles in 2013. In the previous 24 months, Walmart’s fleet has been involved in 375 reportable crashes including 9 fatal crashes and 127 injury crashes. FMCSA chooses to not measure and report what percent of the accidents are the fault of Walmart, but one DOT study showed that in 60% of the highway accidents involving heavy duty trucks the truck driver was not at fault. Even without considering fault, Walmart’s safety record is exemplary. The crash rate is 0.28 per million miles. That means the companies drivers cover 3.6 million miles with only one crash – how many of us can claim anywhere near that level of safety in our personal lives? The fatal accident rate is 0.7 per 100 million miles driven. The national average for heavy-duty trucks in 2011 (the last year with published data) was 1.25 fatal accidents per 100 million miles driven. Walmart has a very strong focus on hours-of-service compliance. Based on 5,686 relevant inspections in the last 2 years, the FMCSA considers Walmart to be better than 99.5% of its peer group in in HOS compliance. Walmart’s fleet is equipped with electronic logging devices (ELD). There are reports that the driver had not slept in 24 hours, but the driver denies that. There is nothing Walmart can do to command a driver to sleep on his off-duty time. The company is responsible for ensuring that the driver not violate the 11 hours of driving time, 14 hours of on-duty time, and other HOS rules, but can not force the driver to sleep while off duty.

    Walmart has stepped up and said that they would take responsibility for the wreck, but also stated that "With regards to news reports that suggest Mr. Roper was working for 24 hours, it is our belief that Mr. Roper was operating within the federal hours of service regulations," 

    The trucking industry likewise has made remarkable improvements in its highway safety record. As recently as 2000, the fatal accident rate was 2.23 per 100 million miles and when the industry was deregulated in 1980 the rate was 4.65. It is true that the fatal accident rate increased in 2010 and 2011, which has led to criticism that the FMCSA is focusing on the wrong things (such as CSA/SMS and faulty HOS rules) in its goal to improve highway safety.

    Some groups are already coming out and urging Congress to hold off on its legislation to roll back the 34-hour restart provisions of the HOS rules as a result of this crash. The 34-hour restart rule is far more likely to cause accidents than to prevent them by pushing trucks onto the highways in morning rush hour, forcing drivers to rest when Washington bureaucrats want them to rather than when they are tired, and forcing the trucking industry to hire 100,000 new inexperienced drivers to make up for the 3-5% productivity loss from the new rule. This rule was not based on sound science, but on the FMCSA’s desire to be seen as tough on trucking and “doing something” about highway safety.

    Many media outlets will use this tragedy involving a celebrity to play up the notion of killer trucks and demand that Washington “do something”. That captures attention, viewers, and readers. The trucking industry, and private fleet operators like Walmart in particular, are doing far more and have a far better record of taking actions that do, in fact, reduce highway accidents even though those actions don’t draw the same level of media buzz.

  • Safety

    OOIDA calls for FMCSA Administrator’s resignation

    - by Tom Sanderson

    Jim Johnston, president of the 150,000 member Owner Operator Independent Drivers Association (OOIDA), has written a letter to Anthony Foxx, Secretary of the Department of Transportation, calling for Anne Ferro’s resignation. In his concluding paragraph, Mr. Johnston writes, “It is the responsibility of FMCSA to promote highway safety with regard to all highway users, including
    truck drivers and other operators of commercial motor vehicles. Instead, Administrator Ferro has waded
    into the murky waters of demagoguery against truck drivers. Administrator Ferro’s failure to perform her
    duties impartially, her failure to lead her agency to fulfill Congressional mandates, and her failure to
    responsibly prioritize the agency’s tasks has left the OOIDA Board of Directors no choice but to
    unanimously vote in favor of a call for Administrator Ferro’s resignation, and for you to begin an
    immediate search for a new FMCSA Administrator who will approach professional truck drivers with the
    respect and fair treatment that their important work and commitment to safety demand.”

    In particular, Mr. Johnston referenced a June 3rd blog post by Administrator Ferro in which she was lobbying Congress to not roll back portions of the new hours-of-service (HOS) rules. In that post, Ms. Ferro highlighted the tragic loss of life in three particular truck accidents. This is the type of argument frequently offered by public-safety advocates in favor of any and all regulations that could have the slightest chance of saving a life, without any regard to scientific evidence that the regulation would in fact save lives, and without any regard to the cost that the regulation imposes on society. Ms. Ferro has direct access to Congress and as head of the agency responsible for motor carrier safety should not rely on social media to make her case to the nation’s lawmakers. On June 5, the Senate Appropriations Committee came down on the side of industry in the first round of this fight.

    I do not believe it would be proper for me to advocate for the Administrators removal, nor for her retention. I do agree with Mr. Johnston that the ongoing effort of the FMCSA to use their public web site, industry speeches, trade magazine interviews, PowerPoint presentations, and social media instead of formal rulemaking to advance the cause of highway safety needs to stop. The ongoing campaign of using shoddy research to justify their positions also has to stop. One of the most egregious examples is the study of 106 predominately local drivers to evaluate the 34-hour HOS restart rule that is only a factor for long-haul over the road drivers. FMCSA’s ongoing reliance on a correlations of averages to bolster their case for CSA/SMS even after the General Accounting Office took them to task for that approach is another example.

    Everyone in our industry is in favor of improving highway safety. Over burdensome regulation that is not based on sound science is not helping achieve that goal. Ms. Ferro acknowledges the lack of success in her blog post, “Since 2009, we’ve seen an 18 percent increase in large truck crash fatalities.”  Unfortunately, she does not acknowledge a need to change course and work more closely with the industry and rely more heavily on sound science and less heavily on demagoguery and social media to achieve the goal.

  • Morgan Stanley Graphs

    Dry van index portrays sustained capacity tightness

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index portrays a market that has remained well above normal seasonality after experiencing record tightness during the first quarter. Despite the effective capacity reduction associated with the stricter Hours-of-Service rules, the nation’s truckload carriers quickly worked through the record backlogs to restore a more normal equilibrium to the dry van market. The dry van index usually peaks around mid-July, then falls through the end of August. If the broader economy picks posts a robust growth figure for the second quarter, the dry van index will likely remain above its historical average into the foreseeable future. The tepid pace of the economic recovery through the first half of 2013 produced lackluster freight volumes as we expected, but the recent upswing is unlikely to fade if the economic landscape continues to improve through the rest of the year. 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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