Archive for August, 2015

  • Carrier Rate Graphs

    TL prices up in Q2 despite abundant capacity

    - by Tom Sanderson

    Stephens Inc. released their Q2-2015 update on publicly traded TL carriers reporting that rates per loaded mile excluding fuel surcharge increased by 4.9% over the same period last year, and increased 1.0% from Q1 of this year. Last quarter marked the twenty-first consecutive quarter of year-over-year TL rate increases.  TL rates remain below the Q4 2014 peak. Contractual pricing is seeing some increases, while spot market rates are down.

    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 does not have any downward impact on linehaul rates. Quarterly data shows larger rate increases in the last five quarters than had been the case in 2013, and illustrates the significant jump in each of the last 3 quarters 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 decreased slightly to 635 miles in Q2 from 639 in Q2 2014  Revenue per tractor per week continued to increase, up almost $100 over the same period last year, while miles per tractor per week were down and remain well below historical averages.

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    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 rates continue to surge in Q2

    - by Tom Sanderson

    Stephens Inc. reported that LTL yields (revenue per hundredweight) increased by 6.4% from Q2 2014 to Q2 2015, and were up 1.2% from Q1 2015. This is after increasing 8.0% year-over-year in Q1. 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 roughly flat year-over-year in Q2, 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 down 0.8% in Q2 ‘15 over Q2 ‘14 for the group of carriers reported on by Stephens. The low year-over-year tonnage growth is 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 21.1% from Q2 ‘10 to the current all-time high. Despite the improving trends, the challenges facing LTL carriers remain apparent as the current pricing levels remain only 7.5% 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 q2 15b

    Stephens LTL q2 15c

  • Morgan Stanley Graphs

    Van capacity-demand balance similar to 2009

    - 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 more readily available than at any time since 2009 during Q3. The graph shows that the capacity-demand balance line remains considerably lower than the low point of 2014. While there were seasonal regional shortages of capacity in Q2, in general capacity simply did not tighten throughout Q2, and has not tightened through Q3. This year had been tracking 2013, but that is no longer the case. It is not clear to what extent 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 very little tightening of van capacity as we move into peak fall shipping, but do expect some tightening of capacity in 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

  • Morgan Stanley Graphs

    Flatbed capacity continues to be readily available

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity had modestly tightened but at a much slower pace than normal during Q2, and has now eased again in Q3, also following normal seasonal patterns. Since the index never rose very far in 2015, it did not have a long way to fall. Flatbed capacity is much more readily available than is normal for this time of year and is now similar to the recessionary levels of 2009.

    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. Low oil prices and a falloff in drilling activity meant that capacity did not tighten much in 2015. 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

  • Morgan Stanley Graphs

    Refrigerated capacity-demand balance is at 2009 recessionary levels

    - by Tom Sanderson

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity remains much more readily available than normal for this time of year. Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Throughout Q2, the market shifted with the result being that capacity was not nearly as constrained as normal for Q2. That is even more the case in Q3. The index is now lower than at any point in any year since 2009. The index has been declining for the last few months, and it appears capacity will not tighten for the balance of 2015. We do believe that in 2016 refrigerated rates will likely rise faster than the broader truckload market as little capacity is entering the industry 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

  • Safety

    Large truck fatalities up, fatality rate down in 2013

    - by Tom Sanderson

    According to the U.S. Department of Transportation, total fatalities in crashes involving large trucks (>10,000 pounds GVW) increased slightly in 2013 to 3,964, representing a 0.5% increase and 20 fatalities over 2012. Total fatalities had declined to a 40-year low of 3,380 in 2009, but have risen slightly in each of the last 4 years. Large truck fatalities per 100 million vehicle miles traveled (VMT) fell slightly to 1.44, after rising in each of the 3 previous years. That is a remarkable 30% lower than the 2000-2009 decade average of 2.07. It is critical to view these recent statistics over the long-run, as the numbers from the last few years in no way diminish the tremendous improvements in safety made by the trucking industry in the post-deregulation years. Despite a sharp increase in the number of VMT across this period, the absolute number of fatalities has significantly declined over the years. Fatalities per 100 million VMT have fallen from a 1979 peak of 6.15 to 1.44 in 2013, a stunning 77% decrease. We congratulate and thank the trucking industry for this remarkable achievement. Still, the increase in both fatalities and the fatality rate since the recessionary low of 2009 are concerning.

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    Despite a historical trend that exhibits a consistently higher fatal crash rate for large trucks than passenger vehicles, truck safety gains had erased this safety gap by 2009. We have seen that gap open back up since then. In 1979, the last year before trucking deregulation, the safety gap peaked at 2.4 fatal crashes per 100 million VMT. In 2009, the gap decreased to 0, but has since ticked back up to 0.5. Over the longer run, the prevalence of crashes has dramatically decreased for both types of vehicles, despite significant increases in total VMT for both large trucks and passenger vehicles.

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    Every highway fatality is a tragedy and all participants in the transportation industry should seek to reduce the frequency of fatal crashes. The current and historical data paints a picture of a trucking industry that has made great strides towards ensuring that America’s highways are continually made safer.

    The uptick in fatalities and the rate of fatalities per 100 million miles since 2009 is concerning, but unfortunately the DOT report does not explain the increase. I can think of a few plausible reasons, but do not have enough data to definitively explain the increase.

    1. Congestion: With the economic recovery since 2009 it seems like we may have greater highway congestion that would lead to more accidents. But, passenger miles traveled were only up 44 billion (1.7%) and truck miles were actually down 13 billion between 2009 and 2013, so that is not a likely explanation.

    2. Distracted Driving: In 2013, for 62.8% of fatal accidents involving large trucks, the “Critical Precrash Event” was  “Other Vehicles” either encroaching in the trucker’s lane or their actions within the trucker’s lane, while only 22.6% were due to the actions of the trucker, with the remaining 14.6% being due to some other reason such as pedestrian actions. There is no question that we have a distracted driving problem in America and with over three-fourths of all fatal truck crashes being caused by something other than the truck driver’s actions, we need to look beyond the trucking industry to find solutions.

    3, Hours of Service: The restart provisions of the the 2013 Hours of Service rules change pushed more trucks out on the road in the morning hours. In 2013, 65.5% of large truck-related fatalities occurred during the 6 AM to 6 PM time frame. While, given the timing, it is obvious that the HOS change did not cause the increase in fatalities between 2009 and 2013, the FMCSA admits it did not study the consequences of pushing trucks onto the highways in morning rush hour and an American Transportation Research Institute study showed that truck accidents are more frequent during congested daylight hours. The roll-back of the restart provisions should improve safety.

    4. CSA: Is it concerning that fatal accident frequency has increased since CSA/SMS was made public. The FMCSA has cut back on the number of carrier Compliance Reviews it conducts while increasing roadside inspections. Given that CSA scores bear no relationship to individual carrier accident frequency, perhaps the FMCSA should reconsider whether this highly flawed and much criticized system may be more of a problem than a solution for improving highway safety.

    One thing that is clear is that the American Trucking Associations and nearly all truckers are incredibly focused on safety and are leading the way on issues and initiatives such as electronic logging devices, speed limiters, hair follicle drug tests, collision avoidance systems, America’s Road Team, Share the Road, and many other actions and programs that are designed to make our highways safer for everyone.

  • Diesel Fuel Prices

    Diesel prices continue to slide

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 5.4 cents to $2.561 per gallon on August 24th,  the thirteenth straight weekly decrease, totaling 35.3 cents. Diesel prices are at the lowest point since August 2009 and are 33% below prior-year levels. As of August 11, the Energy Information Administration (EIA) lowered its pricing forecast to $2.73 per gallon average for 2015 and $2.81 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 could continue to fall from the current level in the near term. Diesel is below the price level in each of the last six years for August.

    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

    Seasonally adjusted auto assemblies hit record high

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks increased 15.6% to 13.3 million units in July (seasonally adjusted), and were up 9.1% from July 2014. July posted the highest reported seasonally adjusted auto assembly total in history. Only in May 2015 and July 2014 had assemblies exceeded a 12-million unit pace since the recession. Non-seasonally adjusted assemblies totaled a 11.0 million unit pace, which is the best total ever for July, typically a slower month for assemblies due to plant shutdowns. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 5.5% in July, the second highest 3-month growth rate of this year. 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, and we have been above that level in each of the last 5 months.

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  • Housing Starts, Sales, and Inventory

    Housing starts top 1.2 million unit pace for second straight month

    - by Tom Sanderson

    Housing starts totaled 1.206 million in July (seasonally adjusted annual rate – SAAR) virtually unchanged from last month. The last two months have been the only months since 2007 in which starts have exceeded a 1.2 million unit annual pace. Starts were 10.1% above the July 2014 rate of 1.095 million. June starts exceeded expectations and June and May starts were revised upwards.. Single family starts totaled 782k (SAAR), 12.8% above June’s 693k, and  up 19.0% year-over-year. A very strong month for housing starts.

    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%.

    At midyear, the rate of growth has gained momentum from 2014 as 2015 YTD starts are up 11.3% at 647.6k. 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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  • Highway Funding

    Long term highway bill; a lot of talk but little action

    - by Tom Sanderson

    On 7/31 president Obama signed the 3rd extension of the MAP-21 highway bill, extending funding until October 29, 2015. MAP-21 was original passed July 6, 2012, covering the remainder of FY2012, plus FY2013 and FY2014, expiring September 30 2014. The bill was first extended last August through May of this year; and then again in May through July of this year; and now again in July through October of this year. For five weeks of the three month extension, Congress is on summer recess.

    Separately, the Senate passed a six-year highway bill on July 30, which was negotiated by majority leader Mitch McConnell (R-Ky.) and Sen. Barbara Boxer (D-Calif.) but House Republicans refused to take up that plan leaving town the day before it passed, forcing the Senate to pass the three-month extension. This is the 34th short-term extension of highway funding legislation approved by Congress since 2005.

    The key challenge is how to pay for the $16 billion per year gap between proposed highway spending and highway user fees raised primarily from federal fuel taxes. Federal fuel taxes have not been raised since 1993, since which time the dollar has lost 40% of its purchasing power due to inflation and fuel economy is up 14%.

    The current Senate six-year proposal has a grab-bag of gimmicks that generate $48.7 billion to pay for three years of incremental spending, punting on how the final three years of spending would be financed. The two main gimmicks are cutting dividends paid by the Federal Reserve to member banks ($17 billion) and selling oil from the Strategic Petroleum Reserve ($7 billion). Talk about buying high and selling low! Increases in fees paid to the Transportation Security Administration, customs fees, and the elimination of Social Security benefits for people with outstanding warrants for their arrest would all contribute a few billion dollars toward the new program.

    There are also proposals to change the U.S. tax that companies pay on overseas profits to provide tens of billions of dollars for highway funding, but Mitch McConnell ruled that out on August 6, correctly pointing out that corporate tax reform and highway funding are two separate issues. Also on August 6, Delaware Democrat Sen. Tom Carper, offered a bill designed to raise fuel taxes by four cents per year in each of the next four years to fund highway spending. Increases in fuel taxes are widely opposed in Washington, but favored by the American Trucking Associations.

    So where does that leave us? Likely with another short-term extension in late October, within days of the expiration of the current extension. The can continues to get kicked down the road.

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