Archive for March, 2016

  • Diesel Fuel Prices

    Diesel prices continue to slowly climb

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices rose 0.2 cents to $2.121 per gallon on March 28th,  the 6th straight weekly increase, but totaling only 14.1 cents. In February, diesel prices had reached their lowest level since January 2005, dropping below the recessionary trough. Diesel prices are 70.3 cents or 25% below prior-year levels. Diesel prices had stabilized between August 24 and November 16 last year, with a high of $2.561 and a low of $2.476 during those 13 weeks, but were in steady decline since then until the last 6 weeks. On March 8, the Energy Information Administration (EIA) dropped its pricing forecast by 10 cents to a $2.12 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 well below the price level in each of the last six years for March.

    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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  • Housing Starts, Sales, and Inventory

    Housing starts surge in February

    - by Tom Sanderson

    Housing starts totaled 1.178 million in February (seasonally adjusted annual rate – SAAR) up 5.2% from last month. Starts were 30.9% above the February 2015 rate and were above expectations. Single family starts totaled 822k (SAAR), up 7.2% from January and up 37.0% year-over-year. Total starts exceeded a 1.0 million unit annual pace for the 11th straight month.

    For the full year 2015, total starts were 1.112 million, up 10.8% over 2014. Single unit starts were up 10.3% in 2015, while 5+ unit starts were up 12.9%. 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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  • Auto Sales & Assemblies

    Auto assemblies show strong year-over-year growth in February

    - by Tom Sanderson

    Annualized U.S. assemblies of autos and light trucks fell 0.6% to 11.80 million units in February (seasonally adjusted), but were up 8.3% from February 2015. Seasonally adjusted assemblies were above an 11-million unit pace in each of the last twelve months.. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year growth was 3.4% in February. 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 at or above that level in each of the last 12 months

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  • Auto Sales & Assemblies

    Auto sales remain above 17-million unit annual pace

    - by Tom Sanderson

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks held steady at 17.4 million in February, coming in below the consensus forecast of 17.6 million, but remaining at or above a 17-million unit annual pace for ten consecutive months. Sales were  6.8% above prior year sales and were down 0.1% from prior month. Imported and domestic light truck sales performed much more strongly than auto sales, which actually declined year-over-year, as low fuel prices continue to sway buyers. Year-over-year growth for our three month moving average was 4.7%.

    Sales set an all time record in 2015 at 17.39 million, narrowly eclipsing 2000 (17.35 million) and 2001 (17.12 million). 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 prerecession 2001-2007 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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  • Carrier Rate Graphs

    LTL yields rise 7.0% in 2015

    - by Tom Sanderson

    Stephens Inc. reported that LTL yields (revenue per hundredweight) increased by 4.1% from Q4 2014 to Q4 2015, and were up 0.8% from Q3 2015. Q4 was the weakest of the year in terms of annual yield growth: 8.0% year-over-year in Q1; 6.4% in Q2; and 5.5% in Q3. The fourth quarter percentage increase was the second largest gain for Q4 over the last 9 years. For the full year, LTL yields were up 7.0%. LTL yields dropped in Q4 of 2013 and Q1 of 2014, before resuming their post-recession climb. Weight per shipment was down 2.4% year-over-year in Q4, likely due to TL to LTL mode shifts in 2014 due to tight TL capacity in Q4 2014. Note that rate per hundredweight is higher at lower shipment weights so the weight drop is responsible for some of the yield increase.

    The LTL rate index is now at its high point (series began in 1996) indicative of pricing discipline by the large LTL carriers. Stephens estimates that LTL rates will increase in the low-single digits in 2016. Tonnage was down 1.5% in Q4 ‘15 over Q4 ‘14 for the group of carriers reported on by Stephens. For the full year 2015, tonnage was down 0.8%, indicative of the softness in the freight market in 2015.

    From their previous Q4-2007 peak level, LTL rates dropped 11.2% to their trough in 2010 but have now surged 24.4% 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 10.5% over the previous peak in 2007 despite the realization of significant cost increases over that 8+-year 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 15

    Stephens LTL q4 15 qtr

    Stephens LTL q4 15 tons

    Stephens LTL q4 15 weight

    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.

  • Ocean Freight

    Ocean spot rates continue to fall

    - by Tom Sanderson

    West coast ocean spot market rates fell $121 to $884 on March 4, while east coast rates fell $179 to $$1,804. East and west coast spot market oceans rates have dropped off significantly from the extraordinary spike on 12/31/15, when west coast rates ($1,518) jumped 98% and east coast rates ($2,555) 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 62% while west coast rates are down 54% year-over-year. From the peak rate of $5,049 per FEU on February 13, 2015, east coast rates have fallen 64% to $1,804, a drop of over $3,200. The west coast peak was the same week at $2,265 per FEU. Those rates have dropped about the same on a percentage basis (61%) to $884, a drop of about $1,400.

    The spread between east and west-coast ports has declined from a peak of $2,937 on 2/27/15 to $920 on 3/4/16. There is not likely to be much more convergence over very many weeks as the premium drops below $1,000 at some times, but not for very long. 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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  • Diesel Fuel Prices

    Diesel prices inch up above $2/gallon

    - by Tom Sanderson

    Weekly retail on-highway U.S. diesel prices rose 3.2 cents to $2.021 per gallon on March 7th,  the 3rd straight weekly increase, but totaling only 4.1 cents. In February, diesel prices had reached their lowest level since January 2005, dropping below the recessionary trough. Diesel prices are 92.3 cents or 31% below prior-year levels. Diesel prices had stabilized between August 24 and November 16 last year, with a high of $2.561 and a low of $2.476 during those 13 weeks, but have been in steady decline since then. On March 8, the Energy Information Administration (EIA) dropped its pricing forecast by 10 cents to a $2.12 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 March.

    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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  • ISM Manufacturing Index

    Manufacturing contracts for 5th straight month

    - by Tom Sanderson

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index increased to 49.5 in February from 48.2 in January. PMI indicated contraction in the manufacturing sector for the fifth consecutive month, but was the best reading since 50.0 in September. PMI came in above expectations (48.5). The New Order Index was flat at 51.5. The Production Index rose by 2.6 points from 50.2 to 52.8. Of 18 manufacturing industries, seven reported monthly contraction in January.

    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 53.9 in 2015, and that 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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