Archive for November, 2014

  • Auto Sales & Assemblies

    Auto assemblies slide in October

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks fell to 10.8 million units in October (seasonally adjusted), 1.2% lower than one year ago, and the lowest level since January. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was only 1.4% in October, not only the worst performance of the year but the lowest since July 2011. The full year 2014 was anticipated to be robust for auto manufacturers, and after a disappointing start to the year, assemblies picked up hitting a 12.9 million unit pace in July, but have cooled off again in the last 3 months.

    The auto industry has come a long way since assemblies bottomed at a 3.6 million-unit annual pace (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 and 5.5% higher than October assembly volumes.

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  • Housing Starts, Sales, and Inventory

    Housing starts top 1 million unit pace for second straight month

    - by Tom Sanderson

    Housing starts totaled 1,009k in October (seasonally adjusted annual rate – SAAR) the second straight month above a million unit pace.  October’s year-over-year growth was strong at 7.8%. Single family starts totaled 696k, the highest level since last November and up 15.4% from prior year. Four months this year have seen starts above the one million unit pace (April & July plus the last 2 months), while excluding January all other months have been above 900k annualized. 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. There were 848 thousand total housing starts during the first ten months of 2014 (not seasonally adjusted), up 9.6% from the 774 thousand during the same period of 2013. Single family starts are up 5% and multifamily starts are up 20%.

    The Census Department reported total 2013 housing starts at 925k, a robust 18.5% 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. Some economists believe that slower population growth and household formation in the U.S. mean that housing starts will not recover to 1.5 million units for a long time.

    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. The ATA estimates that each housing start generates 8 truckloads of freight.

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  • Retail & Same Store Sales

    Retail sales grow and exceed expectations in October

    - by Tom Sanderson

    Seasonally adjusted real retail sales rose to $187.0 billion in October, after falling in September. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). September’s sales were 2.5% higher than the prior-year period. Nominal (unadjusted for inflation) retail sales totaled $444.5 billion in October (second graph), representing a 4.1% year-over-year improvement, and 0.3% increase from September’s results. The results were slightly better than expected for October. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Diesel Fuel Prices

    Declining diesel prices resume after early November jump

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 3.3 cents to $3.628 per gallon on November 24th,  after increasing two weeks ago and dropping slightly last week. A 16.4 cent per gallon spike in the Midwest market on 11/10 attributed to low regional inventories caused the jump earlier this month. Most other regions experienced modest increases or decreases that week. Diesel declined or remained constant in every week between June 30 and November 3 of this year. Diesel is now 5.6% below its prior-year level. 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 had remained within the 2013 range until early September. The $4 price level is no longer in sight. In 2012, diesel exceeded $4 per gallon for a total of 26 weeks but only reached that level for 8 weeks during 2013, and only 4 weeks so far this year. The recessionary low price point for diesel was $2.023 in March 2009. A view of weekly prices over the last 6 years indicates fairly stable prices since Q2 2011 (min of $3.62 and max of $4.16), after rising in previous years. We are now at the low end of that range, and it appears prices will continue to drop. Diesel is now below the price level in each of the last three years for Q4. Diesel prices peaked at $4.771 per gallon in July 2008.

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  • Compliance, Safety, Accountability

    Truck safety group calls for CSA/SMS scores to be removed from FMCSA web site

    - by Tom Sanderson

    The Commercial Vehicle Safety Alliance (CVSA) (a partnership between industry and enforcement groups) has requested in writing that the Federal Motor Carrier Safety Administration (FMCSA) remove from public view the scores from its Compliance, Safety, Accountability program’s Safety Measurement System.

    The November 14th letter acknowledges the importance of safety and CSA’s success in leading carriers to increase their focus on safety initiatives. It also points out the shortcomings, including differences in enforcement practices from one jurisdiction to the next and the lack of relationship between some violations and crash risks. The letter sites the GAO study finding  that CSA SMS scores are “unreliable predictors of individual fleet crash propensity.”

    The letter sums up the essence of the problem very well. “Since the collective crash rates of fleets with SMS scores above thresholds are higher than those below, the SMS is useful as an enforcement prioritization tool. In short, enforcement agencies can focus on these fleets to conduct further investigations and determine which of them are truly risky. On the other hand, since the SMS scores are a poor indicator of an individual fleet’s propensity to be involved in a future crash, their utility in providing the public with information about fleets’ safety performance is limited.”

    The letter concludes “… CVSA echoes stakeholders’ call to remove SMS scores from public view.”

    Congressman Lou Barletta (R-Pa.) introduced legislation Sept. 18 to require the FMCSA to remove from public view the carrier rankings and scores. It was referred to the House’s Transportation and Infrastructure Committee.

    Ten industry trade associates collaborated on a letter to DOT Secretary Foxx on August 22, 2104 also requesting the FMCSA remove SMS scores from their website. That letter concluded, “Given the many identified data sufficiency and reliability issues outlined by the Government Accountability Office, we urge you to direct FMCSA to remove carrier’s SMS scores from public view. Doing so will not only spare motor carriers harm from erroneous scores, but will also reduce the possibility that the marketplace will drive business to potentially risky carriers that are erroneously being painted as more safe.” The trade associations included the American Trucking Associations, the Truckload Carriers Association, The Owner Operator Independent Drivers Association, The National Private Truck Council, and the National Tank Truck Carriers.

  • Auto Sales & Assemblies

    Auto sales hold below 17-million unit pace

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks were unchanged at 16.3 million in October. Sales were  7.0% above October 2013 sales. The unit sales pace is roughly equivalent with the early decade average (2001 – 2007) that has served as our primary barometer of the auto industry’s recovery. Auto sales remain below their all-time high (21.7 million), indicating there is still room for the industry to grow, but most of the post-recession gains have already been achieved. Seven years may seem like a long time to recover from a pre-recession peak, but a look at a couple of previous recessions by Automotive News shows this recovery is similar. Year-over-year growth for our three month moving average was 7.8%, stronger than growth rates over the last couple of months. 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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    Auto sales recoveries

  • Morgan Stanley Graphs

    Refrigerated capacity remains tight

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity remains somewhat tighter than normal for this time of year. but is closer to the long-term trend than it has been for most of the year. While the market is not as capacity constrained as during Q1, capacity did show the normal seasonal tightening through the end of Q2 and through September, and then eased somewhat through October. The index has risen in the last few weeks, parallel to 2013, but we do not expect capacity to be as tight in December as was the case last year. The refrigerated index rose to historic levels throughout the first quarter as severe winter weather caused thousands of trucks to sit idle. 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: Alex Vecchio at Alexander.Vecchio@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    Dry van capacity remains tighter than normal

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index indicates that van capacity still remains somewhat tighter than normal for this time of year, but more readily available than it has been for most of 2014. Steadily rising demand, coupled with regulatory-driven truck productivity hits have prevented the dry van market from fully normalizing after the winter weather spike from the first quarter. Carriers are still adjusting to the 3%-5% effective capacity reduction under the Hours-of-Service rules. The economic decline in the first quarter produced lackluster freight volumes but second quarter economic growth was strong and as we work our way through the fall pre-holiday shipping season, van capacity has remained tighter than normal. We are now at the time of last year’s December tightening but a repeat is not 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: Alex Vecchio at Alexander.Vecchio@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity demand balance finally back to normal levels

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index has fallen off in the last two months and flatbed capacity is now in line with normal balance for this time of year. Flatbed capacity tightened a little later than normal this year but then remained tight longer than normal. Flatbed capacity-demand balance has favored the carriers over the shippers more so this year than in the previous two years. Flatbed capacity was readily available throughout 2013 despite increased oilfield production and the 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: Alex Vecchio at Alexander.Vecchio@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Carrier Rate Graphs

    TL rates surge 4.8% in Q3

    - by Tom Sanderson

    Stephens Inc. released their Q3-2014 update on publicly traded TL carriers reporting that rates per loaded mile excluding fuel surcharge increased by 2.1% sequentially from Q2-2014 and rose 4.8% over the same period last year. Last quarter marked the eighteenth consecutive quarter of year-over-year rate increases.  Stephens expects 2014 rates to be up 5%, higher than their earlier estimates. Quarterly data (second chart) shows larger rate increases in the last three quarters than had been the case in 2013, but similar to 2011 increases. The difference being that 2011 increases followed decreases in ‘09 & early ‘10. 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 reversed trend, increasing to 631 miles (third chart) after experiencing a steady decline since 2002. This is significant because 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. Revenue per tractor per week continued to increase, but this is unadjusted for inflation. Miles per tractor per week also increased, but remain well below historical averages.  The Stephens’ revised prediction of 5% increases in 2014 seems a little high to us, but not by much.

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    Stephens tl q3 14

    Step loh q3 14

    Rev per tract q3 14

    mls per trac q3 14

    Graphs reproduced with permission from Stephens Inc. For more information contact: Jack Waldo at jwaldo@stephens.com or Brad Delco at brad.delco@stephens.com.

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