Archive for December, 2014

  • Morgan Stanley Graphs

    Refrigerated capacity is very tight heading into 2015

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity finished 2014 significantly tighter than normal for this time of 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 before tightening again in the last two months. 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

    Flatbed capacity-demand balance finishes 2014 at 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

  • Morgan Stanley Graphs

    Van capacity has been very tight through December

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index indicates that van capacity still remains tighter than normal for this time of year, and tighter than has been the case for most of the second half of 2014. Steadily rising demand, coupled with regulatory-driven truck productivity hits prevented the dry van market from fully normalizing after the winter weather spike in the first quarter. Capacity may ease somewhat early in 2015 with the rollback of the Hours-of-Service rules and post-holiday freight softness. The economic decline in the first quarter produced lackluster freight volumes but second and third quarter economic growth was strong and as we worked our way through the holiday shipping season, van capacity remained tighter than normal. 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

  • Housing Starts, Sales, and Inventory

    New home inventories rise as sales decline

    - by Tom Sanderson

    New home inventories rose to 213k in November (seasonally adjusted) from 210k in October. Inventory levels have been slowly increasing throughout 2014. November’s new home inventory was well above the prior-year level of 185k, and inventories are at their highest level since May 2010, but new home inventories still remain low by historical standards. Inventories rose from 149k at the beginning of 2013 to 187k by December, following a year of remarkable stability in 2012 where the absolute inventory of new homes remained within a consistent range of 142k – 150k. The growth in inventories in the last year (not seasonally adjusted) has been driven more by completed homes (15k) rather than homes under construction (11k). The last three months showed a spike of 8k in completed homes and a decline of 6k in homes under construction.

    Seasonally adjusted new home inventories rose slightly to 5.8 months of supply in November. Sales were 438k in November (SAAR), down 1.6% from both prior month and prior year. The months of supply figure remained below 5 months between February 2012 and June 2013, but has drifted upward since then. The average months of supply over the last 50 years is 6.1, so current new home inventory is below “normal” levels. 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, and we are above that level today.  The vertical bars in the graphs represent recessions.

     

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  • Diesel Fuel Prices

    Diesel prices close December at 4-year low, nearing $3

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 6.8 cents to $3.213 per gallon on December 29th,  the lowest price since December 2010. Diesel declined or remained constant in every week between June 30 and November 3 of this year, and after a one-week uptick has resumed its fall. Diesel is now 17.7% 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 Energy Information Administration (EIA) is now predicting $3 diesel in the Spring of 2015, however it must be said they are notoriously bad at forecasting energy prices. 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 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 (second chart) indicates fairly stable prices between Q2 2011 and the start of the recent slide (min of $3.65 and max of $4.16). We are now well below that range, and it appears prices will continue to drop. Diesel is now below the price level in each of the last four years for December. Diesel prices peaked at $4.771 per gallon in July 2008.

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  • Retail & Same Store Sales

    Retail sales exceed expectations in November

    - by Tom Sanderson

    Seasonally adjusted real retail sales rose to $189.5 billion in November, a 1% increase over October. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). November’s sales were 3.8% higher than the prior-year period, the best performance of 2014. Nominal (unadjusted for inflation) retail sales totaled $449.3 billion in November (second graph), representing a 5.1% year-over-year improvement, and 0.7% increase from October’s results. The results were better than the consensus expectation of 0.4% growth for November. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Auto Sales & Assemblies

    Auto assemblies recover in November

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks increased to 11.7 million units in November (seasonally adjusted), 3.9% higher than one year ago, and the second highest level of the year. Assemblies grew 8.6% over October, which was the lowest month of 2014 and the only month since January below an 11 million unit annual pace. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was only 1.3% in November, not only the worst performance of the year but the lowest since July 2011, reflecting October’s dismal performance. 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 cooled off in the 3 months preceding November.

    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 just about equal to the 2014 average.

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  • Housing Starts, Sales, and Inventory

    Housing starts decrease in November

    - by Tom Sanderson

    Housing starts totaled 1,028k in November (seasonally adjusted annual rate – SAAR) the third straight month above a million unit pace, but a 1.6% decline from October and below expectations (1,038).  November’s year-over-year growth was -7.0%, as last November posted strong results at 1.1 million. Single family starts totaled 677k, the second highest level of the year, trailing only October. Five months this year have seen starts above the one million unit pace (April & July plus the last 33 months), and 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 927 thousand total housing starts during the first eleven months of 2014 (not seasonally adjusted), up 8.2% from the 781 thousand during the same period of 2013. Single family starts are up 4.4% and multifamily starts are up 16%.

    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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  • Ocean Freight

    Ocean spot-market rates surge

    - by Tom Sanderson

    Spot market oceans rates rose sharply last few week, with west-coast rates up 19% and east coast rates up 8%. There has been significant week-to-week volatility as rates had declined in each of the previous two weeks, but the increase in east-coast spot market rates in the last 6 months is significant. The major shipping lines continue to have greater pricing power to east coast ports than west coast ports as the spread between east and west-coast ports remains large. The Shanghai Containerized Freight Index (SCFI) for west coast ports was $2,259 per FEU and to east coast ports was $4,363 on December 12. Prior-year comparisons highlight the pricing disparity between the coasts as west-coast rates are up $559 (33%) over 2013 and east-coast rates are up $1,401 (47%). The disparity between the coasts had been fairly consistent in the first half of the year, but spot prices to the east coast spiked as volumes have risen due to both peak-season shipping and diversions from west coast ports. The SCFI reflects spot market rates for the Shanghai export container transportation market.

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  • Diesel Fuel Prices

    Diesel drops to lowest price in almost 4 years

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 11.6 cents to $3.419 per gallon on December 15th,  the lowest price since January 2011. Diesel declined or remained constant in every week between June 30 and November 3 of this year, and after a one-week uptick has resumed its fall. Diesel is now 11.7% 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, and $3 diesel could appear in the near future. 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 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 (second chart) indicates fairly stable prices between Q2 2011 and the recent slide (min of $3.65 and max of $4.16). We have now dropped below 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 and is closing in on 2010 price levels. Diesel prices peaked at $4.771 per gallon in July 2008.

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