Archive for January, 2017

  • Morgan Stanley Graphs

    Dry van capacity is tighter than has been the case for most of the last 2 years

    - by Tom Sanderson

    Dry van capacity is tighter than has been the case for most of the last 2 years

    Morgan Stanley’s dry van truckload index indicates that van capacity-demand balance shifted at the end of 2016, with capacity becoming tighter than in 2015 and very close to the 11-year trend line for year-end. As we begin 2017, capacity is tighter than in early 2016 and again is very close to the longer-term trend line for January. Capacity started to tighten up a little through July of 2016, unlike 2015 when the index was declining through July.  The index then flattened out in 2016, but in December capacity tightened up and the index hit its highest level of the year.

    While the negative impact on capacity of ELDs will not be felt until late 2017, any acceleration in the freight economy could lead to tighter van capacity earlier in 2017. While capacity is not nearly as tight today as was the case in early 2014 or 2015, the index is very close to early 2011 and 2013 and to the 11-year trend line. Any surge in freight volumes as we get closer to Q2 could lead to significantly tighter capacity and upward rate pressure. 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 is close to normal levels for January

    - by Tom Sanderson

    Refrigerated capacity-demand balance is close to normal levels for January

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity ended 2016 slightly tighter than in the prior year but more readily available than normal for year-end. For most of 2016, refrigerated capacity was more readily available than in 2015, but in Q4 the lines crossed indicating a tighter capacity environment than in the prior year. As we start 2017, capacity is tighter than was the case in 2016, but very close to the 11-year trend line for January.

    Refrigerated capacity began 2015 the same way it ended 2014, significantly tighter than normal. Throughout Q2 of 2015, 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 continued through the first half of 2016, but then we saw a slight shift, moving towards a more balanced market, but not quite getting there. For the last 18 months, the index has been very stable at a level reflecting excess refrigerated capacity.

    We do not believe that refrigerated rates will increase much in early 2017, but later in the year we could see some increases as smaller refrigerated carriers adopt ELDs and see equipment utilization drop by 4-5%.  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 is slightly tighter than a year ago, but remains abundant

    - by Tom Sanderson

    Flatbed capacity is slightly tighter than a year ago, but remains abundant

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity finished 2016 just slightly tighter than at the end of 2015 and just slightly more more readily available that the 11-year average at year-end. As we start the new year, flatbed capacity-demand balance is right on the 11-year trend-line and capacity is a little tighter than was the case in early 2016. Flatbed capacity modestly tightened through June of 2015, but eased substantially after that. In 2016, flatbed capacity was more readily available than was the case in 2015 until the last 6 weeks of the year, when the lines crossed. 2016 was a year of remarkable excess capacity in the flatbed market, quite similar to 2009. The last twelve months have seen unusual stability in the flatbed index considering the historical seasonal volatility of capacity-demand balance. With the ELD mandate not coming until December (well after the peak time of year for flatbed demand), it seems likely that we will not see significant tightening of flatbed capacity in 2017.

    Flatbed capacity-demand balance favored the carriers over the shippers more so in 2014 than in the prior 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

  • Retail & Same Store Sales

    November retail sales show strong growth, led by e-commerce

    - by Tom Sanderson

    November retail sales show strong growth, led by e-commerce

    The U.S. Bureau of the Census reported that seasonally adjusted real retail and food service sales decreased 0.1% to $192.1 billion in November. (Note that actual sales are deflated using CPI 1982 – 1984 = 100). November sales were 2.0% higher than the prior-year period.

    Nominal (unadjusted for inflation) seasonally-adjusted retail sales totaled $465.5 billion in November (second graph), up 0.1% from prior month, and up 3.8% from prior year results. Total nominal sales are up 3.1% year-to-date.

    The results were below consensus expectations and October was revised downward. Nominal retail and food services sales excluding gasoline were up 3.8% year-over-year. Nonstore retailer sales (e-commerce and mail order) were up 11.9% and food services were up 4.9%. Gasoline station sales were up 4.0% year-over-year, a reversal from most of 2016 with YTD sales down 7.3%. Department stores sales fell 6.4% year-over-year, while electronics and appliances store sales were down 3.8%, clearly reflecting e-commerce gains. We focus primarily on real retail sales because they are a better indicator of freight volumes than the inflated figures.

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  • Housing Starts, Sales, and Inventory

    New home inventories reach post-recession high, but sales are robust

    - by Tom Sanderson

    New home inventories reach post-recession high, but sales are robust

    According to the U.S. Census Bureau and the Department of Housing and Urban Development, single-family new home inventories increased to 250k in November (seasonally adjusted). Inventories had leveled off over the 12 months ending in October (low of 230k and high of 246k), but are now at the highest level since September 2009. November’s new home inventories were 20k (8.7%) above the prior-year level of 230k. New home inventories still remain low by historical standards.

    The growth in inventories in the last year (seasonally adjusted) has been driven by homes under construction (+9K), more so than by homes not yet started (+5k) and homes completed  (+6k).

    Inventory levels slowly increased throughout 2014, peaking at 212k in December. Inventories rose from 149k at the beginning of 2013 to 187k by December, following a year of remarkable stability in 2012 where the absolute inventory of new homes remained within a consistent range of 142k – 150k.

    Seasonally adjusted new home inventories held relatively steady at 5.1 months of supply in November, from 5.4 months a year ago and 5.2 months in October. Sales of single-family houses rose to 592k (seasonally adjusted annual rate), up 5.2% from revised prior month sales and up 16.5% from prior year. Year-to-date absolute sales are up 12.7% at 522k.

    Full year 2015 new home sales were up 14.6% to 501k. For the full year 2014, new home sales only grew by 1.9% to 437k units. The months of supply figure remained below 5 months between February 2012 and June 2013, but was 5.0 or more from that point through the end of 2014 with only one exception. In 2015, eight months were at 5.0 or greater months of supply, including each of the last 7 months. The average months of supply over the last 50 years is 6.1, so current new home inventory are well below “normal” levels. For the 9-year period of 1997 through 2005, the inventory level averaged 4.1 months with relatively little volatility, despite the dot-com boom and subsequent recession, and we are above that level today.  The vertical bars in the graphs represent recessions.

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  • Housing Starts, Sales, and Inventory

    Housing starts plummet in November

    - by Tom Sanderson

    Housing starts plummet in November

    Housing starts totaled 1.090 million in November (seasonally adjusted annual rate – SAAR) down 18.7% from last month’s revised figures, and down 6.9% from November 2015 results, and were well below expected levels. Single family starts totaled 828k (SAAR), down 4.1% from October but up 5.3% year-over-year. Starts of multi-unit structures plummeted in November to 259k (SAAR) from 462k in October. November multi-unit permits were down 15.8% from October so it was a tough month overall for multi-family units. Total starts exceeded a 1.0 million unit annual pace for the 20th straight month, but November had the second fewest number of housing starts in 2016. YTD total starts are up 4.8% over 2015 with single family starts up 9.6% and 5+ unit starts down 4.1%.

    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 to cover for the housing sector to fully 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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