Archive for March, 2015

  • Auto Sales & Assemblies

    Auto and light truck assemblies

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks decreased 5.4% to 10.8 million units in February (seasonally adjusted), and were down 3.7% from February 2014. February assemblies were the lowest since January 2014. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 3.0% in February reflecting better performance the prior two months and weak performance in January 2014. The 3% growth rate was lower than most of 2014.

    The auto industry has come a long way since assemblies bottomed out 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, stronger than February results but just about equal to the last few months.

    image

  • Morgan Stanley Graphs

    There is no dry van capacity crunch so far in ‘15

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index indicates that van capacity is much more readily available than last year at this time and also slightly more readily available than the ‘06-‘14 average for early March. There has been a lot of public commentary about current weakness in the TL contract and spot market pricing arena, and the graph shows that the capacity-demand balance line remains near the low point of 2014. The graph is right in line with 2012 and 2013 at this point. It is not clear whether the additional availability is driven by weaker freight, hours-of-service rollback, or actual capacity additions, but all three are likely contributors. We do still believe that we will see significant tightening of van capacity as we move into Q2. 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.

    image

    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

    Capacity tightness eases for refrigerated freight

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity-demand balance is right at the ‘06-‘14 average for this time of year. Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. The market is not nearly as capacity constrained as during the weather-driven challenges experienced in Q1 of 2014. The index is on an upward trajectory and it is not clear whether it will continue the up and down pattern of the last few years, or spike up as in 2014. We do believe that refrigerated rates will likely continue to rise faster than the broader truckload market as little capacity is entering the industry despite steadily rising demand, and intermodal is not as strong for refrigerated freight. 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.

    image

    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 is readily available at this time

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is more readily available than is normal for this time of year, and is very similar to capacity-demand balance in Q1 2013. Flatbed capacity tightened a little later than normal in 2014 but then remained tight longer than normal. Flatbed capacity-demand balance favored the carriers over the shippers more so in 20014 than in the previous two years, but capacity never became as tight last year as in 2010 and 2011. It is hard to predict when the curve will ramp up and how tight capacity will become as we move towards Q2. Low oil prices and a falloff in drilling activity may mean that capacity will not tighten much in 2015, although it seems likely that flatbed capacity will tighten more than is the case today. 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.

    image

    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

  • Auto Sales & Assemblies

    Auto sales fall to lowest level of last 10 months

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks fell to 16.2 million in February, well below the consensus forecast of 16.7 million units. Sales were  5.4% above February 2014’s weather-reduced sales but were down from January’s 16.6 million unit pace. This was the tenth consecutive month in which sales exceeded a 16-million unit annual pace, but was the lowest figure for any of those 10 months. The unit sales pace is just below 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. Year-over-year growth for our three month moving average was 7.7%, near the high end of the range of growth rates over the last 12 months. The full-year sales total for 2014 was 16.5 million up 6% from 15.6 million in 2013 and right in line with 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.

    image

  • Compliance, Safety, Accountability

    FMCSA taken to task for ignoring GAO and Congressional direction on CSA and HOS

    - by Tom Sanderson

    On March 5, the Senate Commerce Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety and Security held a hearing that was harshly critical of FMCSA’s lack of action and follow up on the Compliance, Safety, Accountability (CSA) system and Hours of Service (HOS).

    Director Physical Infrastructure Issues General Accounting Office (GAO), Susan Fleming’s testimony was critical of CSA, “First, SMS uses violations of safety-related regulations to calculate a score, but GAO found that most of these regulations were violated too infrequently to determine whether they were accurate predictors of crash risk. Second, most carriers lacked sufficient data from inspections and violations to ensure that a carrier’s SMS score could be reliably compared with scores for other carriers. GAO concluded that these challenges raise questions about whether FMCSA is able to identify and target the carriers at highest risk for crashing in the future.”

    Fleming indicated that FMCSA has done nothing to address these issues, “FMCSA did not concur with GAO’s recommendation to revise the SMS methodology … Therefore, FMCSA has not taken any actions.”

    The committee chairman Deb Fischer (R-Neb) criticized the FMCSA regarding HOS. “For example, FMCSA issued the final 34-hour restart rule in 2013 with complete disregard for congressionally-mandated requirements for an efficacy study on the rule’s impact.  When the study was eventually issued several months late, the sample size was not representative of this diverse industry.  In addition, serious concerns were raised about the rule’s perverse impact on safety because, in effect, it pushed drivers onto the roads during workers, students, and families’ morning commutes.”

    Senator Fischer was also highly critical of FMCSA’s disregard of the GAO review of CSA. “In 2014, the GAO investigated the methodology behind FMCSA’s Compliance, Safety, and Accountability Program.  Inaccurate CSA scores, publically available online, have cost companies contracts and raised insurance rates – all of this has occurred without a clear correlation to increasing highway safety. When confronted with these findings, FMCSA completely disregarded GAO’s recommendations.  To address flaws in CSA implementation, major stakeholders, including law enforcement, requested that FMCSA remove CSA scores from public view.”

    It is terrific to see congressional scrutiny of a federal agency that continues to disregard science and hard facts while promoting regulations that harm carriers and shippers while doing nothing to improve highway safety, and in the case of HOS rules, actually make the roads less safe.

  • Carrier Rate Graphs

    LTL rates reach new high, 5.5% annual increase

    - by Tom Sanderson

    Stephens Inc. reported that LTL yields (revenue per hundredweight) increased by 5.5% from Q4 2013 to Q4 2014, and were up 2.1% from Q3 2014. LTL yields had been increasing since early 2012, but dropped in Q4 of 2013 and Q1 of 2014, before resuming their climb. Weight per shipment was slightly higher year-over-year in Q4, which is usually associated with lower revenue per hundredweight, but shipment weights did drop for the full year 2014 from the 2013 average. The LTL rate index is now at its high point indicative of some tightness in LTL capacity and pricing discipline by the LTL carriers. Stephens estimates that LTL rates will increase by 3.5% for the full year 2015. Tonnage was up 6.7% in 2014 for the group of carriers reported on by Stephens.

    From their previous Q4-2007 peak level, LTL rates dropped 11.2% to their trough in 2010 but have now surged to an all-time high. Despite the improving trends, the challenges facing LTL carriers remain apparent as the current pricing levels remain only 6.2% over the previous peak in 2007 despite the realization of significant cost increases over that period. Some of the capacity issues that impact the TL segment, like CSA and Hours-of-Service rules, are not as relevant to the LTL segment. Industry concentration and consolidation does provide LTL carriers better pricing power than is the case for TL carriers.

    Stephens LTL q4 2014

    Stephens LTL 2014

    Stephens weight per ship 2014

    Stephens LTL tons 2014

    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.

  • Retail & Same Store Sales

    Retail sales fall in January, but show strong year-over-year growth

    - by Tom Sanderson

    Seasonally adjusted real retail and food service sales fell to $187.4 billion in January, a 0.1% decrease from December. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). January’s sales were 3.5% higher than the prior-year period, a higher year-over-year percentage growth than was the case in any month last year. Nominal (unadjusted for inflation) retail sales totaled $439.8 billion in January (second graph), representing a 3.3% year-over-year improvement, and 0.8% decrease from December’s results. The results were worse than the consensus expectation of a 0.5% decline for January. Nominal retail sales excluding gasoline increased slightly. Consumers are not racing to spend the windfall received from lower gas prices. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

    image

    image

  • ISM Manufacturing Index

    Manufacturing growth decelerates in February

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index dropped to 52.9 in February, the fourth straight monthly decline, coming in just below expectations (53.0). February’s PMI was the lowest since January 2014, but was the twenty-first consecutive month of expansion. The New Order Index fell to 52.5, down 0.4 points from January. The Production Index also fell to 53.7 from 56.5. Of 18 manufacturing industries, 12 reported monthly expansion. The West Coast dock slowdown was mentioned a problem, negatively impacting both exports and imports, but that has been resolved. Long Beach port officials believe it will take 3 months to recover from the slowdown.

    After a slow start in January of 2014, PMI recovered, with a range of 54.3 to 58.1 for the balance of 2014. An index over 50 indicates growth while a PMI under 50 represents contraction in the manufacturing sector of the economy. The index reached a low of 32.5 in December 2008 but then recovered more quickly than other areas of the economy.

    image

Load More