Morgan Stanley Graphs

  • Morgan Stanley Graphs

    Refrigerated capacity-demand balance about normal for late Q3

    - by Tom Sanderson

    Refrigerated capacity-demand balance about normal for late Q3

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is significantly tighter than last year and 2015, and just a little tighter than the long-term trend line for late September. Aside from the severe excess capacity markets of 2015 and 2016, capacity-demand balance is about normal for this time of year.

    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. Capacity continued to tighten through the end of January this year, but then eased off a little before gradually tightening throughout Q2 and then stabilizing in Q3.

    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.

    Later this year we could see more rate 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.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 a little tighter than normal, but could get even tighter in the next couple of months

    - by Tom Sanderson

    Flatbed capacity is a little tighter than normal, but could get even tighter in the next couple of months

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is tighter than normal for late September, but unlike the van index has not surpassed 2014 levels. As we head into Q4, I expect flatbed capacity to get tighter. Demand will strengthen for building products shipments as a result of the hurricanes. Supply will also be challenged. There are very few large and very many small flatbed carriers. As the smaller carriers implement ELDs in Q4, utilization will decline reducing effective capacity.

    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. Flatbed capacity continued to tighten through the first half of 2017, but leveled off in Q3. If the index holds at the current level, capacity will be tighter in Q4 than in any recent year.

    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 or 2016. So far, 2017 as been more of a “normal” year, tracking fairly close to the longer-term average.

    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.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 tight & partly hurricane related

    - by Tom Sanderson

    Van capacity is tight & partly hurricane related

    As we near the end of Q3, van capacity is significantly tighter than in any recent year for late September. The index moved above the tightest recent capacity year (2014) in the last couple of weeks. Once the hurricane disruptions ease, we will probably see capacity ease up but a strong holiday push leading up to the December 18th ELD mandate could lead to very tight capacity later this year. While carriers will not be placed out of service for non-ELD compliance until April 1st, they will be receiving citations beginning in December and I expect that many small carriers will be implementing ELDs in Q4, so the utilization hit will be felt.

    In December of last year, capacity tightened and the index reached its highest level of 2016. That was a very different pattern than 2015, when capacity was at it tightest in January and became more readily available throughout the year. This year, capacity became tighter than normal early in Q3 and has remained above the longer-term trend line for the entire third quarter.

    Morgan Stanley believes that capacity will remain as tight as it is today through the end of the year. That could well be the case as the economy is picking up some steam, freight typically pick up in Q4, and the utilization hit of small carriers implementing ELDs will be felt in Q4. We have already seen spot rates increase in late Q2 and throughout Q3. If Morgan Stanley is right, there will be no relief in spot rates through Q4.

    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.

    image

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 tight

    - by Tom Sanderson

    Van capacity is tight

    Moving through Q3, van capacity is significantly tighter than in 2016 and 2015, and is tighter than normal for this time of year. The index is almost identical to 2014, with the difference being that in 2014, we were relieved to see capacity tightness easing up from a very tough fist half of the year, and this year we are concerned that capacity could get much tighter if the economy expands and as ELDs are mandated.

    Capacity started to tighten up a little through July of 2016, but then the index flattened out through November. In December, capacity tightened and the index reached its highest level of 2016. That was a very different pattern than 2015, when capacity was at it tightest in January and became more readily available throughout the year.

    While the negative impact on capacity of ELDs will not be felt until late 2017, it is concerning that capacity is already this tight before the impact of ELDs is felt. If there is a surge in freight volumes later in Q3, capacity will tighten and we will see upward contract rate pressure. We have already seen spot rates increase in June and July, 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.

    MS van 7-26-17

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 has tightened, but only to normal seasonal levels

    - by Tom Sanderson

    Refrigerated capacity has tightened, but only to normal seasonal levels

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is significantly tighter than last year and 2015, and very close to the long-term trend line for late July. Aside from the severe excess capacity markets of 2015 and 2016, capacity-demand balance is about normal for this time of year.

    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. Capacity continued to tighten through the end of January this year, but then eased off a little before gradually tightening throughout Q2 and into Q3.

    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.

    With tighter capacity this summer contract rates could begin to increase, as they already have in the spot market. Later in the year we could see more 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.

    MS reefer 7-26-17

    Graph reproduced with permission from Morgan Stanley. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity is tighter than normal for late July

    - by Tom Sanderson

    Flatbed capacity is tighter than normal for late July

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity is tighter than normal for late July, and far tighter than was the case in the last two years in mid summer. The index is greater than all years except 2011 and 2014 over the last 8 years. 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. Flatbed capacity continued to tighten through the first half of 2017, but has leveled off over the last few weeks.

    2016 was a year of unusual stability and remarkable excess capacity in the flatbed market. With the ELD mandate coming in December (and given that the market is already tighter than normal), it is possible that we will see significant tightening of flatbed capacity through the end of the year.

    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 or 2016. 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.

    MS flat 7-26-17

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 is tightening at a very slow pace nearly half way through Q2

    - by Tom Sanderson

    Refrigerated capacity is tightening at a very slow pace nearly half way through Q2

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is tighter than last year, similar to 2015, and very close to the long-term trend line for early May. It also indicates that refrigerated capacity is more readily available now than it was in January, which is not an uncommon pattern.

    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. Capacity continued to tighten through the end of January but has eased since then and the late Q1, early Q2 ramp-up is not as pronounced as normal. For the last 18 months, the index has been very stable at a level reflecting excess refrigerated capacity.

    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.

    We do not believe that refrigerated rates will increase much in Q2 or Q3, 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.

    MS 05-02-17 reefer

    Graph reproduced with permission from Morgan Stanley. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

  • Morgan Stanley Graphs

    Flatbed capacity continues to tighten, closing in on “average” capacity-demand balance levels

    - by Tom Sanderson

    Flatbed capacity continues to tighten, closing in on “average” capacity-demand balance levels

    Morgan Stanley’s flatbed freight index indicates that flatbed capacity continues to tighten and is tighter than was the case in either of the last two years for early May. The index is just below the 11-year average for May so it would still be hard to argue that capacity is tight. 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. Flatbed capacity has continued to tighten so far this year and at a pretty steep pace the last two months.

    2016 was a year of unusual stability and remarkable excess capacity in the flatbed market. With the ELD mandate not coming until December (well after the peak time of year for flatbed demand), it is possible that we will not see significant tightening of flatbed capacity in 2017, but if the slope of the line continues through the remainder of Q2 and into Q3, flatbed capacity may be in short supply this summer.

    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 or 2016. 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.

    MS 05-02-17 flat

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 remains abundant, but could still tighten later this year

    - by Tom Sanderson

    Van capacity remains abundant, but could still tighten later this year

    Moving into Q2, van capacity is tighter than in Q2 2016, is almost identical to 2015, but is more readily available than normal for this time of year. The index has recovered some but not all of its falloff from January, indicating somewhat greater excess van capacity than was the case early this year.

    Capacity started to tighten up a little through July of 2016, but then the index flattened out through November. In December, capacity tightened and the index reached its highest level of 2016. That was a very different pattern than 2015, when capacity was at it tightest in January and became more readily available throughout 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 by Q3 of  2017. In most years, capacity gets tighter as we enter Q2, but that is only marginally true in 2017. If there is a surge in freight volumes later in Q2, capacity will tighten and we will see upward rate pressure, but it is not at all clear that we will see demand increase enough in Q2 to absorb the excess capacity in the market today. 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.

    MS 04-19-17 van

    Graph reproduced with permission from Morgan Stanley. *2006-2016 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 remains more readily available than normal for April

    - by Tom Sanderson

    Refrigerated capacity remains more readily available than normal for April

    Morgan Stanley’s refrigerated freight index indicates that refrigerated capacity is tighter than last year, but more readily available than normal for April. It also indicates that refrigerated capacity is more readily available now than it was in January, which is not an uncommon pattern.

    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. Capacity continued to tighten through the end of January but has eased since then and the late Q1, early Q2 ramp-up is not as pronounced as normal. For the last 18 months, the index has been very stable at a level reflecting excess refrigerated capacity.

    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.

    We do not believe that refrigerated rates will increase much in Q2 or Q3, 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.

    MS 04-19-17 reefer

    Graph reproduced with permission from Morgan Stanley. *2006-2016 average trend line excludes financial crisis years of 2008 and 2009. For more information contact: Alex Vecchio at Alexander.Vecchio@morganstanley.com

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