Archive for April, 2015

  • Morgan Stanley Graphs

    Refrigerated capacity-demand balance is about normal for this time of year

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is just slightly more readily available than normal 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, and the index is lower now that at any point in 2014. The index has been volatile for the last few months, and it is not clear when and to what extent capacity will significantly tighten. 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.

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    Graph reproduced with permission from Morgan Stanley. *2006-2014 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    TL dry van capacity is more readily available than normal for Q2

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index indicates that van capacity is more readily available than last year at this time and also more readily available than the ‘06-‘14 average for Q2. Early in the year there had been a lot of public commentary about weakness in the TL contract and spot market pricing arena, and the graph shows that the capacity-demand balance line is lower than the low point of 2014. Recently some reports have indicated an increase in TL pricing, but that is suspect given current capacity availability. The graph is right in line with 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 Q3. 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. *2006-2014 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity has not tightened as it normally does in Q2

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is much more readily available than is normal for this time of year, and is very similar to capacity-demand balance in 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 2014 than in the previous two years, but capacity never became as tight last year as in 2010 and 2011. It is interesting to see that as we move through Q2, flatbed capacity has not started to tighten in its normal seasonal pattern. Low oil prices and a falloff in drilling activity may mean that capacity will not tighten much in 2015, although it still 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.

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    Graph reproduced with permission from Morgan Stanley. *2006-2014 average trend line
    excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com or Bill Greene at William.Greene@morganstanley.com

  • Auto Sales & Assemblies

    Auto sales exceed 17 million unit pace for first time since November

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks rose to 17.1 million in March, beating the consensus forecast of 16.8 million units. Sales were  3.8% above March 2014 sales and were up 5.5% over February’s 16.1 million unit pace. The unit sales pace is just above 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 6.0%, pulled down by weak February results.

    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.

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  • ISM Manufacturing Index

    Manufacturing index declines for fifth straight month

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index dropped to 51.5 in March, the fifth straight monthly decline, coming in below expectations (52.5). March’s PMI was the lowest since May 2013, but was the twenty-seventh consecutive month of expansion. The New Order Index fell to 51.8, down 0.7 points from February. The Production rose slightly to 53.8 from 53.7. Of 18 manufacturing industries, 10 reported monthly expansion. The recently resolved West Coast dock slowdown was mentioned a problem, negatively impacting both exports and imports.

    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.

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  • Retail & Same Store Sales

    Disappointing retail sales in February

    - by Tom Sanderson

    Seasonally adjusted real retail and food service sales fell to $185.8 billion in February, a 0.8% decrease from January. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). February’s sales were 1.8% higher than the prior-year period, the smallest year-over-year percentage growth since February 2014. Nominal (unadjusted for inflation) retail sales totaled $437.0 billion in February (second graph), representing a 1.7% year-over-year improvement, and 0.6% decrease from January’s results. Sales fell for the 3rd consecutive month. The results were worse than the consensus expectation of a 0.3% increase for February. Nominal retail sales excluding gasoline decreased by 0.8%. Consumers are not spending the windfall received from lower gas prices.  Severe winter weather was blamed for a decrease in auto sales in particular. 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

    Diesel prices reach 5-year low

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 4.0 cents to $2.824 per gallon on March 30th,  the third straight weekly decrease, totaling 12 cents. Diesel is now at a five-year low point last seen February 15, 2010 when diesel was $2.756 per gallon. Diesel is 29% below its prior-year level. As of March 10, the Energy Information Administration (EIA) was predicting a $2.89 per gallon average for 2015 and $3.25 for 2016.

    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. In 2014, diesel prices remained within the 2013 range until early September, but then began a steep decline.  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 in 2014. The recessionary low price point for diesel was $2.023 in March 2009. Diesel prices peaked at $4.771 per gallon in July 2008.

    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 hold at the current level with some fluctuation in the near term. Diesel is now below the price level in each of the last five years for March.

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