Archive for October, 2016

  • Morgan Stanley Graphs

    Van capacity a little tighter than last year, but still readily available compared to prior years

    - by Tom Sanderson

    Van capacity a little tighter than last year, but still readily available compared to prior years

    Morgan Stanley’s dry van truckload index indicates that van capacity is more readily available than normal for late fall, but is a little tighter than this time last year. Capacity started to tighten up a little through July, unlike last year when the index was declining through July.  August reversed that pattern but since then there has been little volatility in comparison to last year when the index was falling at this time of year. While there have been and will continue to be seasonal regional shortages of capacity, in general capacity will not be constrained for the balance of the year. Three factors are driving excess capacity: weaker freight (reflecting very weak economic growth in the freight sector), hours-of-service rollback, and actual capacity additions. The spigot has been turned off on capacity additions, but it will take a few quarters to absorb the excess capacity that exists in the market today. We do not expect capacity shortages until mid-to-late 2017 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

    Refrigerated capacity-demand balance remains stable, and favors shippers

    - by Tom Sanderson

    Refrigerated capacity-demand balance remains stable, and favors shippers

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity remains much more readily available than normal for this time of year, and at almost exactly the same balance as last year at this time. The index began 2016 at a low level, especially compared to 2014 and 2015. From that point, capacity became even more readily available, and then tightened just a little through the summer and fall. 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. That trend has continued throughout 2016. For the last 15 months, the index has been very stable at a level reflecting excess capacity.

    We do not believe that refrigerated rates will increase much in early 2017, despite the fact that intermodal is not as strong for refrigerated freight. Refrigerated capacity is just too plentiful at this time to support rate increases. Demand for refrigerated transportation is less correlated to economic fluctuations than dry van or flatbed freight, so the future robustness of GDP growth will not determine demand growth 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

    Flatbed capacity remains abundant

    - by Tom Sanderson

    Flatbed capacity remains abundant

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is more readily available for this time of year than in any of the previous 7 years, although the market is similar to 2015, 2012, and 2019. Flatbed capacity modestly tightened through June of last year, but eased substantially after that. In 2016, flatbed capacity has been more readily available all year than was the case last year. As the year winds down, it is clear that 2016 will be a year of remarkable excess capacity in the flatbed market. The last twelve months have seen unusual stability in the flatbed index considering the historical seasonal volatility of capacity-demand balance.

    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.

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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

  • Auto Sales & Assemblies

    U.S. auto assemblies flatten our near pre-recession levels

    - by Tom Sanderson

    U.S. auto assemblies flatten our near pre-recession levels

    Annualized U.S. assemblies of autos and light trucks increased 0.1% to 12.04 million units in September (seasonally adjusted), and were up 1.0% from prior year. Seasonally adjusted assemblies have been above an 11-million unit pace all year and above a 12-million unit pace in 3 of the last 4 months. Our graph is a three-month moving average of seasonally adjusted annualized assemblies. Using this moving average, year-over-year assemblies were down 1.8%, the third consecutive monthly decline.

    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 averaging 11.7 and 11.8 million units in 2015 and 2016 respectively.

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  • Auto Sales & Assemblies

    Year-to-date auto sales nearly flat with 2015

    - by Tom Sanderson

    Year-to-date auto sales nearly flat with 2015

    Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks increased to 17.7 million in September, coming in above the consensus forecast (17.4 million). Sales were 1.8% below prior year sales but were up 4.4% from prior month. Year-over-year sales for our three month moving average (graphed) was down 1.3%, the 5th consecutive monthly decline. Imported and domestic light truck sales performed much more strongly than auto sales. Total year-to-date sales are up 0.4% over 2015, with light trucks up 7.6% and cars down 8.7%. After several years of rising sales, we seem to have reached a plateau in auto and light truck sales.

    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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  • Diesel Fuel Prices

    Diesel at 2015 levels after steady increases this year

    - by Tom Sanderson

    Diesel at 2015 levels after steady increases this year

    Weekly retail on-highway U.S. diesel prices fell 0.3 cents to $2.478 per gallon on October 24. Diesel had increased in each of the previous three weeks totaling 9.8 cents per gallon. In February, diesel prices reached their lowest level since January 2005, dropping below the recessionary trough, before rebounding to a year-to-date high of $2.481 on 10/17. Diesel prices are almost identical to the level one year ago; down 2.0 cents or 0.8%. 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 between then and February 2016 before beginning a steady climb for most of this year, now falling back into that same narrow band we saw late last year. On October 13, the Energy Information Administration (EIA) decreased its pricing forecast by 1 cent to 2.69 per gallon for 2017.

    A view of weekly prices over the last 6+ years (second chart) indicates fairly stable prices between Q2 2011 and the start of the 2015 slide (min of $3.65 and max of $4.16). We remain well below that range, but have caught back up to late 2015 price levels. Diesel is well below the price level in each of the last five years prior to 2015 for October.

    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 fall in September as 5+ unit starts plummet

    - by Tom Sanderson

    Housing starts fall in September as 5+ unit starts plummet

    Housing starts totaled 1.047 million in September (seasonally adjusted annual rate – SAAR) down 9.0% from last month’s revised figures, and down 11.9% from September 2015 results, and were below expected levels. Single family starts totaled 783k (SAAR), up 8.1% from August and up 5.4% year-over-year. Starts of multi-unit structures plummeted in September to 250k (SAAR) from 409k in August. September multi-unit permits were the highest recorded this year, so stronger October starts are expected. Total starts exceeded a 1.0 million unit annual pace for the 18th straight month, but September had the fewest number of housing starts over the last year and a half. YTD total starts are up 3.7% over 2015 with single family starts up 8.6% and 5+ unit starts down 5.6%.

    In comparison to the last couple of years single-unit starts are growing faster than multi-unit starts. 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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  • ISM Manufacturing Index

    Manufacturing expands in September following one month of contraction in August

    - by Tom Sanderson

    Manufacturing expands in September following one month of contraction in August

    The Institute of Supply Management (ISM) reported that the Purchasing Managers’ Index rose to 51.5 in September from 49.4 in August. March broke a streak of 5 consecutive months of contraction in the manufacturing sector of the economy, and began a streak of 5 consecutive months of expansion. After contracting in August the manufacturing sector is expanding again.  PMI came in above expectations (50.2). The New Order Index rose by 6 points to 55.1. The Production Index rose by 3.2 points to 52.8. Of 18 manufacturing industries, only 7 reported monthly growth in September.

    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. This year we have not seen a number above June’s 53.2. 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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