Archive for January, 2016

  • Ocean Freight

    Ocean spot rates start to fall after year-end spike

    - by Tom Sanderson

    East and west coast spot market oceans rates have dropped off somewhat from the extraordinary spike on 12/31/15, when west coast rates jumped 98% and east coast rates jumped 76%. Spot rates remain volatile but are still at far lower levels than at the conclusion of the west-coast port strike. East coast rates are down 49% while west coast rates are down 33% year-over-year. Prior to the year-end spike, east coast rates were at levels not seen since December of 2009, while west coast rates were near the low point of the last five years.  From the peak rate of $5,049 per FEU on February 13, 2015, east coast rates have fallen 52% to $2,420, a drop of over $2,600. The west coast peak was the same week at $2,265 per FEU. Those rates have dropped less (39%) to $1,377, a drop of about $900.

    The spread between east and west-coast ports has declined from a peak of $2,937 on 2/27 to $1,043 on 1/22. There could be modest continued convergence as the premium has been less than $1,000 at some times. Carrier’s clearly exercised their market power during the strike as shippers diverted freight to the east coast, but now spot rates have corrected to levels considerably lower than those preceding the strike.

    The SCFI reflects spot market rates for the Shanghai export container transportation market.

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    Source: Shanghai Containerized Freight Index – Shanghai Shipping Exchange, The Journal of Commerce, Transplace analysis.

  • Auto Sales & Assemblies

    Auto assemblies drop in December, but 2015 was strong

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks fell 1.3% to 11.52 million units in December (seasonally adjusted), and were down 1.0% from December 2014. Seasonally adjusted assemblies were above an 11-million unit pace in each of the last nine months. July 2015 posted one of the highest reported seasonally adjusted auto assembly totals in history. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 2.5% in December. 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 9 months.

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  • Auto Sales & Assemblies

    Auto and light truck sales set record in 2015

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks fell  to 17.2 million in December, falling well short of expectations (18.1 million), but remaining at or above a 17-million unit annual pace for eight consecutive months. Sales set an all time record in 2015 at 17.39 million, narrowly eclipsing 2000 (17.35 million) and 2001 (17.12 million). Sales were  2.5% above prior year sales and were down 4.6% from prior month. Imported and domestic light truck sales performed much more strongly than auto sales as low fuel prices continue to sway buyers. The unit sales pace continues to exceed the early decade average (2001 – 2007) that has served as our primary barometer of the auto industry’s recovery. Annual U.S. auto and light truck sales only exceeded 17 million units in 2000 and 2001. Year-over-year growth for our three month moving average was 6.2%.

    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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    Source: Federal Reserve Bank of St. Louis



    US Light Vehicle Unit
    Sales
     YTD  Yr-Ago YTD  %
    Chg.
     
    Domestic 13,662,659 12,977,071 5.3
    Car 5,580,005 5,589,374 -0.2
    Light Truck 8,082,654 7,387,697 9.4
    Import 3,723,672 3,458,155 7.7
    Car 1,944,716 2,098,245 -7.3
    Light Truck 1,778,956 1,359,910 30.8
    Total  17,386,331 16,435,226 5.8
    Source: WardsAuto
    InfoBank

  • Housing Starts, Sales, and Inventory

    Housing starts post double-digit gains in 2015

    - by Tom Sanderson

    Housing starts totaled 1.149 million in December (seasonally adjusted annual rate – SAAR) down 2.5% from last month. Starts were 6.4% above the December 2014 rate but were below expectations. Single family starts totaled 768k (SAAR), down 3.3% from November and up 6.1% year-over-year. Total starts exceeded a 1.0 million unit annual pace for the 9th straight month. For the full year 2015, total starts were 1.111 million, up 10.8% over 2014. Single unit starts were up 10.4% in 2015, while 5+ unit starts were up 12.5%.

    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%.

    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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  • Morgan Stanley Graphs

    Refrigerated capacity is readily available

    - 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 of last year, the market shifted with the result being that capacity was not nearly as constrained as normal. That was even more so the case in Q3 and Q4 as the index dropped to a level lower than in any recent year, including 2009. The index has leveled off and begins 2016 at a similar level as in Q4 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

  • Morgan Stanley Graphs

    Van capacity is readily available early in 2016

    - by Tom Sanderson

    Morgan Stanley’s dry van truckload index indicates that van capacity is more readily available now than it has been in each of the last 6 Januaries, but is slightly tighter than during the recession year of 2009. Capacity is much more readily available than last year at this time. While there were seasonal regional shortages of capacity early in 2015, in general capacity became more readily available in the second half of the year. Three factors are driving excess capacity: weaker freight, hours-of-service rollback, and actual capacity additions. We do not expect capacity to tighten in 2016 unless the economy regains steam. 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 is abundant in January

    - by Tom Sanderson

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity in more readily available for this time of year than in any of the previous 6 years, but slightly tighter than during the recession of 2009. Flatbed capacity modestly tightened through June of last year, but eased substantially since then. Since the index never rose very far in 2015, it did not have a long way to fall to reach and then drop below 2009 levels.The falloff seems to have stabilized over the last few months.

    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 in 2014 as in 2010 and 2011. Low oil prices and a falloff in drilling activity meant that capacity never did tighten 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.

    flatbed

    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

  • Diesel Fuel Prices

    Diesel nears the recessionary low point

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices fell 4.1 cents to $2.071 per gallon on January 25th,  the 11th straight weekly decrease, totaling 43.1 cents. Diesel prices have reached their lowest level since March 2009 and are within a nickel of dropping below the recessionary trough. Diesel prices are 28% below prior-year levels. Diesel prices had stabilized between August 24 and November 16, with a high of $2.561 and a low of $2.476 during those 13 weeks. On January 12, the Energy Information Administration (EIA) dropped its pricing forecast by 38 cents to a $2.29 per gallon average 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 dramatically below that range. Diesel is below the price level in each of the last six years for January.

    Diesel experienced a high but narrow pricing environment throughout 2013, fluctuating between a 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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  • Retail & Same Store Sales

    Retail sales fall 0.1% in December

    - by Tom Sanderson

    Seasonally adjusted real retail and food service sales were virtually unchanged at $188.4 billion in December. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). December sales were 1.7% higher than the prior-year period. Nominal (unadjusted for inflation) seasonally-adjusted retail sales totaled $448.1 billion in November (second graph), down 0.1% from prior month, and up 2.2% from prior year results. The results were below consensus expectation of unchanged total sales. Excluding strong auto-related sales knocks a full point off the year-over-year growth rate to 1.2%. For the full year, nominal sales were up 2.1% over 2014. For the trailing three-month period, nominal sales were up 1.8% year-over-year.   Nominal retail and food services sales excluding gasoline were up 3.9% year-over-year.  The results were weak, but excluding gasoline, 3.9% year-over-year growth is not bad.  We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • ISM Manufacturing Index

    Manufacturing sector contracted for second straight month in December

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index decreased to 48.2 in December from 48.6 in November. PMI came in well below expectations (49.2) and registered the worst performance since June 2009. The New Order Index increased to 49.3, up 0.3 points from November. The Production Index rose by 0.6 points from 49.2 to 49.8. Of 18 manufacturing industries, ten reported monthly contraction in December.

    After a slow start in January of 2014, PMI recovered, with a range of 54.3 to 58.1 for the balance of 2014. We did not see a reading above 53.5 in 2015, and that annual high mark was reached in January. 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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