Archive for May, 2015

  • Carrier Rate Graphs

    TL yields up 5.4% in Q1 over prior year, but soften from Q4

    - by Tom Sanderson

    Stephens Inc. released their Q1-2015 update on publicly traded TL carriers reporting that rates per loaded mile excluding fuel surcharge increased by 5.4% over the same period last year, but fell 3.1% from capacity-constrained Q4 2014 pricing levels Last quarter marked the twentieth consecutive quarter of year-over-year rate increases.  The Q1 year-over-year gain was the highest Q1 gain since 2005, and barely trailed the 7.0% increase in Q4 2015. Driver shortages, rail service failures, and west coast port issues were factors driving prices higher.

    Stephens expects 2015 rates to be up 4-6%, and I concur with that estimate. The dramatic decline in fuel prices has significantly lowered fuel surcharges, but that will not have any downward impact on linehaul rates. Quarterly data (second chart) shows larger rate increases in the last five quarters than had been the case in 2013, and illustrates the significant jump in Q1 relative to most quarters over the last few years. The data does 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 increased to 672 miles (third chart) in Q1 up from and 652 in Q1 2014 and 634 for the full year 2014, likely reflecting rail service issues in 2014 that carried over into Q1. This is significant because longer hauls are typically associated with lower revenue per mile, so real rate increases may be even larger than the indexes suggest. Revenue per tractor per week continued to increase, up almost $200 over the same period last year. Miles per tractor per week were up less than 1% and remain well below historical averages.

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    Stephens tl q1 15 b

    Stephens tl q1 15 loh

    Stephens tl q1 15 rev per trac

    Stephens tl q1 15 mls per trac

    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.

  • Carrier Rate Graphs

    LTL yields up 8% in Q1 over prior year

    - by Tom Sanderson

    Stephens Inc. reported that LTL yields (revenue per hundredweight) increased by 8.0% from Q1 2014 to Q1 2015, but were only up 0.1% from Q4 2015. 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 lower year-over-year in Q1, which is usually associated with higher revenue per hundredweight, but shipment weights did increase for the full year 2014 from the 2013 average. The LTL rate index is now at its high point (series began in 1996) 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 0.6% in Q1 ‘15 over Q1 ‘14 for the group of carriers reported on by Stephens. The low year-over-year tonnage growth and minimal increase in yields from Q4 2105 are indicative of the softness in the freight market so far in 2015.

    From their previous Q4-2007 peak level, LTL rates dropped 11.2% to their trough in 2010 but have now surged 19.6% from their trough in Q2 ‘10 to an all-time high. Despite the improving trends, the challenges facing LTL carriers remain apparent as the current pricing levels remain only 6.3% 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.

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    Stephens LTL q1 2015

    Stephens weight per ship Q1 2015

    Stephens ltl tons q1 15

    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 flat in April, annual growth at only 1%

    - by Tom Sanderson

    Seasonally adjusted real retail and food service sales fell slightly to $185.1 billion in April, a 0.1% decrease from March. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). March sales were 1.0% higher than the prior-year period, the smallest year-over-year percentage growth since February 2014. Nominal (unadjusted for inflation) retail sales totaled $436.8 billion in April (second graph), representing a 0.9% year-over-year improvement, and no change from March results. The results were slightly worse than the consensus expectation of a 0.2% increase for April. Nominal retail sales excluding gasoline were unchanged for the month and up 3.6% year-over-year. Year-to-date sales are up 1.5% from 2014. Consumers are still not spending 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.

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  • Mexico Cross Border Trucking

    Rail is growing faster, but truck still dominates U.S.-Mexico cross-border freight transportation

    - by Tom Sanderson

    The flow of trucks and rail containers across the U.S. Mexico border is growing, but not at a tremendously fast pace according to data from the U.S. Department of Transportation Bureau of Transportation Statistics. In 2014, 3.8 million loaded truck containers and 474k loaded rail containers crossed the U.S.-Mexico border including northbound and southbound flows. That means there were 8 truck crossings for every one rail container crossing in 2014, and the ratio has been 10:1 or more in some years, including 2009 and 2010. The compound annual growth rate from 1996 to 2014 was 4.5% for truck and 6.9% for rail.

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    The annual percentage growth or decline in rail container crossings is much more volatile than truck crossings, growing faster when the economy is strong but shrinking more when the economy is weak (and when rail service is challenged). Trucking companies reduce prices in weak economies to hang on to freight and keep their trucks moving. In stronger economies trucking companies take price increases to improve financial results when there is a shortage of equipment. Rail picks up the slack. The annual numbers show that there is only one year since 1999 that truck crossings have grown by more than 10% year-over-year, while rail growth has exceeded 10% in 7 of these years. In 2014, it is likely that industry-wide rail service and capacity issues prevented rail from continuing to grow at a faster rate than truck for U.S.-Mexico trade.

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    It is also clear that cross-border trucking has become more balanced between northbound and southbound flows, while rail container crossings remain highly imbalanced. In the late 90’s there was almost one empty truck border crossing for every loaded truck crossing. In 2014, 71% of all truck crossings were loaded. Given that there is more northbound than southbound freight, there are probably relatively few northbound empty crossings so the numbers imply that there is still about 1 empty for every 1 loaded southbound truck move. Rail crossings remain highly imbalanced and only in the last 2 years have there been more loaded than empty rail container crossings. Again, given the stronger northbound flows, the number suggest that there are very few southbound loaded rail container moves. The dramatic difference in equipment balance between truck and rail reduces the overall economic advantage of rail versus truck  because of the need to move empties southbound to handle the northbound flows. Despite this inefficiency, intermodal is growing at a faster pace than truck driven by the long haul nature of cross-border freight, the shortage of long haul truck drivers, customs clearance advantages, and the overall economic advantage of rail over truck for long haul transportation.

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  • Morgan Stanley Graphs

    Dry van capacity has not tightened in 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. The graph shows that the capacity-demand balance line is lower than the low point of 2014. Recent reports have indicated an increase in TL pricing, but that is suspect given current capacity availability. The graph remains 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 now think that we will see some tightening of van capacity as we move into Q3, but do not expect significant shortfalls until 2016. 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

    No signs yet of normal Q2 tightness in flatbed capacity

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity has started to tighten but at a much slower pace than normal for Q2, Flatbed capacity is much more readily available than is normal for this time of year, and remains 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 nearly as much as 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

  • Morgan Stanley Graphs

    Refrigerated capacity remains readily available

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity remains more readily available than normal for this time of year. Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Midway through Q2, the market is not nearly as capacity constrained as during Q2 of 2014, and the index is lower than 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 later this year refrigerated rates will likely 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

  • Housing Starts, Sales, and Inventory

    Housing starts at post-recession high

    - by Tom Sanderson

    Housing starts totaled 1,135k in April (seasonally adjusted annual rate – SAAR) the first month above a 1.1 million unit pace since November 2013 and the highest monthly total since November 2007. It was also a nice recovery from the prior two months, both of which were below a 1 million unit pace. Starts were 20.2% above the revised March estimate of 944k and 9.2% above the April 2014 rate of 1,039k. April starts were well ahead of expectations (1,029k). Single family starts totaled 733k (SAAR), well above March’s 628k and the highest monthly total since January 2008. Single family starts were up 14.7% year-over-year.

    For the full year 2014, there were 1.003 million total housing starts, up 8.8% from the 925 thousand starts during 2013. Single family starts were up 4.9% and multifamily starts were up 16.4%. Total 2013 housing starts were up a robust 18.5% from the 781k housing starts recorded in 2012 and in 2012 starts were up 28.2%, so the rate of growth has definitely tapered off as 2015 YTD starts are up only 5.5%. 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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  • Diesel Fuel Prices

    Diesel prices up for 5th straight week

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices rose 2.6 cents to $2.904 per gallon on May 18th,  the fifth straight weekly increase, totaling 15 cents. Diesel prices still remain near a 5-year low point and are 26% below prior-year levels. As of May 12, the Energy Information Administration (EIA) was predicting a $2.88 per gallon average for 2015 and $3.12 for 2016.

    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 May.

    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.

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  • Auto Sales & Assemblies

    Auto sales fall, but best April in years

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks fell to 16.5 million in April, falling below expectations (16.9 million) but posting the best April results since 2006. Sales were  3.1% above April 2014 sales and were down 3.5% over March’s 17.1 million unit pace. Light truck sales performed more strongly than auto sales as low fuel prices sway buyers. The unit sales pace remains right around 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 4.1%, reflecting weak February and April 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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