Morgan Stanley’s flatbed freight index is rising again but is far off the pace of Q2 2010 indicating more readily available capacity at this time compared to Q2 but still a somewhat more  tight capacity environment than at this time in the previous few years. The flatbed market was particularly hard hit by the fall off in housing starts, but has gained some ground with the growth in U. S. manufacturing. 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.

Morgan Stanley Flatbed 09-19-10.jpeg
Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Green at William.Greene@morganstanley.com

Morgan Stanley’s refrigerated truckload freight index has fallen off somewhat from the pace of Q2 2010 indicating more readily available capacity at this time compared to Q2. Refrigerated capacity continues to be very tight relative to 2009 and to most other recent years. The exception is the hurricane-induced capacity shortages at the end of 2005. The last two months have shown increasing tightness of refrigerated capacity. 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.

Morgan Stanley Refrig 09-19-10.jpeg

Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com​ or Bill Green at William.Greene@morganstanley.com

Morgan Stanley’s dry van truckload freight index has fallen off somewhat from the pace of Q2 2010 indicating more readily available capacity at this time compared to Q2 but certainly a much tighter capacity environment than 2009. 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. In Q2 it was starting to look like we may see a repeat of the TL capacity shortages of 2004 and 2005, but at this point the graph is tracking very closely to 2006 and 2008 which were strong through Q2 and then plunged toward the end of the year.

 

Morgan Stanley TL 09-19-10.jpeg

Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com​ or Bill Green at William.Greene@morganstanley.com

U.S. assemblies of autos and light trucks fell to a seasonally adjusted level of 7.70 million in August from 8.38 million in July. July was somewhat unusual as the normal July auto assembly plant shut downs were not as pervasive as normal. In fact, non adjusted assemblies rose significantly between July and August. Our graph is a 3-month moving average of the seasonally adjusted annualized sales, and shows strong growth for 2010, but still very depressed levels compared to historical assembly volumes.

It was somewhat surprising to see truck driver shortages featured on the front page of the business section of the USA Today on September 9. The full article can be accessed through this link USA Today. The article points out that despite a less than robust economic recovery and nearly 10% unemployment there are already shortages of trucking capacity that are driving up freight prices and causing missed deliveries. The article also points to a 4% increase in contract rates and as much as a 40% increase in spot rates in 2010. I agree that there has been some pressure on TL rates this year, but we are typically not seeing 4% increases in professionally managed transportation procurement events. On the other hand, we are definitely seeing requests for much more than 4% increases when transportation rates are negotiated the old-fashioned way; one carrier at a time. Spot rates have increased this year, and in some areas of the country there are double digit increases, but 40% seems a little extreme, unless it is a last minute situation. Overall I think the author jumps the gun in saying the sky is falling at this time.

The article does correctly point out that when the economy recovers and new regulations come into effect the TL capacity shortage will be severe. The dark clouds on the horizon include CSA 2010, which many estimate will take 5-10% of the capacity off the road, hours of service reductions, electronic on-board recorder mandates, and speed limit reductions. Despite the tremendous safety record of the trucking industry, the federal government just can’t resist the urge to appear to do something useful without any regard to the economic cost of their actions.

Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks totaled 11.439 million in August; a small decline from July. Sales fell from 14.1 million in August of 2009, which was the height of cash for clunkers sales. Even using our more stable 3-month moving average, sales were off 3.1 percent from the prior year. This is the first decrease in year-over-year sales since November 2009. Sales have remained fairly stable between March and August of this year. Auto sales remain 32% below the average annual sales of 16.7 million from January of 2001 to December of 2007, before sales started to decline in 2008. The low point for sales was the first six months of 2009, when annualized sales averaged 9.621 million as potential buyers tightened their belts and waited for the July launch date of the federal cash for clunkers program. Upon expiration of the handout, sales dropped back below 10 million and have slowly regained some of the lost ground since then. It is clear from the data that the $3 billion cash for clunkers program did nothing but reward people for buying cars later or earlier than they had already planned. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.

Weekly retail on-highway U.S. diesel prices eased slightly for the fourth straight week to $2.931 per gallon from $2.938 in the prior week. Prices have been in a fairly tight range since early March with a low of $2.899 and a high of $3.131, which is better illustrated in our second graph. Diesel prices peaked at $4.764 per gallon in July of 2008 and were above $3 per gallon from September 24, 2007 to November 3, 2008. Prices in 2010 continue to fall between pricing levels of the prior two years, but with much lower volatility.

Weekly retail on-highway U.S. diesel prices eased for the third straight week to $2.938 per gallon from $2.957 in the prior week. Prices have been in a fairly tight range since early March with a low of $2.899 and a high of $3.131, which is better illustrated in our second graph. Diesel prices peaked at $4.764 per gallon in July of 2008 and were above $3 per gallon from September 24, 2007 to November 3, 2008. Prices in 2010 continue to fall between pricing levels of the prior two years, but with much lower volatility.

The Institute of Supply Management reported that the Purchasing Managers’ Index (PMI) increased from 55.5 in July to 56.3 in August. This represents 13 consecutive months of growth and an increase after three straight months of small declines and an expected decline in August. A PMI over 50 indicates growth while a PMI under 50 indicates contraction in the manufacturing sector of the economy. The index reached a low of 32.5 in December but then recovered more quickly than other areas of the economy and remains one of the brighter spots in the economy today. The blue bars in the graph represent recessions

Morgan Stanley’s dry van truckload freight index has fallen off somewhat from the pace of Q2 2010 indicating more readily available capacity at this time compared to Q2 but certainly a much tighter capacity environment than 2009. 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. In Q2 it was starting to look like we may see a repeat of the TL capacity shortages of 2004 and 2005, but at this point the graph is tracking very closely to 2006 and 2008 which were strong through Q2 and then plunged toward the end of the year.

 

Graph reproduced with permission from Morgan Stanley Research. For further information, please contact Bill Greene William.Greene@morganstanley.com or Adam Longson Adam.Longson@morganstanley.com