New home inventory increased to 9.1 months of supply in July from 8.0 months in June, driven by slower sales as the Federal Home Buyer Tax Credits expired. The absolute inventory of new homes continues to fall and is now at 209 thousand, the lowest level seen since the late 1960’s. Any recovery in the rate of sales would quickly deplete the low absolute inventory level and lead to a significant increase in housing starts (and freight) but that does not appear likely in the near term. The blue bars in the graphs represent recessions.

Stifel Nicolaus (www.stifel.com) reported continued yield pressure but financial gains for publicly traded less than truckload (LTL) carriers in Q2. The Stifel industry sector Snapshot for the LTL sector showed a further compression of 1.2% in revenue per hundredweight (yield) including fuel surcharge. That makes 7 straight quarters of declining year-over-year yields for the LTL carriers as the battle to win YRC’s share and the weak economy continue to take a toll on the LTL segment. Operating ratios improved substantially from Q1 2010 and from Q2 of last year but have just now dropped below 100% for the first time since 2008. LTL carriers have a long way to go to achieve operating ratios in the low 90’s as they had achieved before the recession. Weight per shipment continues to climb as parcel carriers win smaller shipments and TL carriers only reluctantly accept multi-stop TL shipments. All else being equal, LTL yields vary inversely with weight per shipment, so part of the yield compression is not related to price reduction but to larger average shipment size. After six straight negative quarters, the composite LTL group showed EPS growth over a very weak 2009, and positive EPS for the quarter.

 

 

Graph reproduced with permission from Stifel Nicolaus. For more information contact: JGLarkin@Stifel.com

Once again, a critical issue in our industry is making headlines in the mainstream press. Last week Mexico expanded its retaliatory tariffs on U.S. products in protest of the on-going failure of the U.S. to honor our NAFTA commitments by allowing cross-border trucking with Mexico. There is an excellent editorial in the Wall Street Journal’s August 21 issue that can be read on-line by subscribers at WSJ Teamster Tariffs. The editorial is appropriately titled "The Teamster Tariff" in reference to the pressure that the union has successfully applied to thus far stop cross-border trucking. Mexico removed 16 items from the tariff list but added 26 new items, bringing the total list to 99 agricultural and industrial products affecting about $2.5 billion in trade with 43 states. Referring to truck safety concerns, Economy Secretary Gerardo Ruiz Mateos said "The argument was that the trucks did not comply with their safety rules, despite the fact that during the pilot program there were more than 46,000 crossings without any significant incidents." Mexico is targeting products that can easily be imported from other trading partners and targeting states where Senators and Representatives oppose cross-border trucking.

Stifel Nicolaus (www.stifel.com) reported financial and operational gains for publicly traded truckload carriers in Q2. The Stifel industry sector Snapshot for the TL sector showed a modest gain of 1.1% in revenue per loaded mile excluding fuel surcharge. The heavy bid activity of 2009 continues to dampen year-over-year comparisons. Spot market TL rates have risen but the level of increase in contract pricing is less than spot prices and it takes longer for contract rates to expire. It’s been a pretty tough pricing market for the TL carriers since 2006 Q3. Operating ratios improved substantially from Q1 2010 and from Q2 of last year and are only a point or two away margins experienced before the recession. Truck utilization also shows gains over 2009 and is nearly back to normal levels. With better utilization and a small boost in yields, it is not surprising to see strong EPS growth over a very weak 2009.

 

 

Graph reproduced with permission from Stifel Nicolaus. For more information contact: JGLarkin@Stifel.com

Weekly retail on-highway U.S. diesel prices eased slightly to $2.957 per gallon from $2.979 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.

U.S. assemblies of autos and light trucks rose to a seasonally adjusted level of 8.38 million in July from 7.37 million in June. This is the highest level of assemblies since July of 2008. The number may be misleading though, as non-seasonally adjusted assemblies were the lowest since July of 2009. The usual July auto assembly plant shut downs may not have been as pervasive as is factored into the seasonal adjustment. Non adjusted assemblies were 36% higher than last July. 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.

July housing starts totaled 546 thousand down from 549 thousand in June. Housing starts remain 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. Low housing starts not only impact transportation demand for building products but also for appliances, furniture, and other related items.

 

The debate over truck size and weight limits hit the mainstream business press this week with an excellent article in the Wall Street Journal that can be read in full by subscribers on the WSJ web site at: WSJ Truck Size

The article is not limited to trucking, also referring to longer trains that save fuel and reduce track wear and tear and deeper ports to accommodate larger container ships. The main focus of the article is a push by Kraft Foods Inc. and a coalition of 150 companies lobbying Congress for a 97,000 pound gross vehicle weight limit up from the current 80,000 pound limit, which has been in place since 1974. The idea is to reduce total truck trips, thus reducing highway congestion and fuel consumption, but protecting road wear by adding a third axle on the trailer. Efforts are also focused on expanding the opportunities for double 53′ trailers and triple 28′ trailers, again focusing on greater productivity, lower costs, less fuel consumption, less traffic, and lower greenhouse gasses. A western states governors’ group estimates that miles traveled by heavy trucks could be cut by 25% with greater use of longer combination vehicles (LCVs).

As usual, the anti-truck lobby is strongly opposed citing safety concerns that cannot be backed up with any facts. Sen. Frank Lautenberg (D., N.J.) and Rep Jim McGovern (D., Mass.) have filed legislation to ban bigger and heavier trucks.

Transport Topics; By Sean McNally Senior Reporter; Updated: 8/17/2010 3:30:00 PM

The Mexican government plans to expand its list of U.S. goods targeted for higher tariffs, as part of its retaliation for the U.S. government’s refusal to reopen the border to long-haul cross-border trucking.

"The government of Mexico has renewed the list of U.S. goods subject to increased tariffs," according to a statement posted on the embassy’s website. "The revised list will involve 99 U.S. products with a similar total export value to Mexico as the previous list."

The Mexican government "has yet to receive a formal proposal for resolution of this dispute and an unequivocal signal that the U.S. government is working to eliminate the barriers that Mexican long haul carriers face to access the U.S. market," the statement said.

The announcement did not specify which new products would be on the list.

Last year, after the Obama administration and Congress shut down a pilot project to allow a limited number of Mexican carriers to access U.S. highways beyond the border commercial zone, Mexico set tariffs on a number of goods ranging from Christmas trees to frozen potatoes, with a value of $2.5 billion.

Since then, U.S. officials have said repeatedly that they were working on a plan to revive the program, required under provisions of the North American Free Trade Agreement.

U.S. Trade Representative Ron Kirk said Monday that the U.S. government was continuing to work with Congress to resolve the dispute, and that he was "disappointed" with Mexico’s move to expand tariffs, Bloomberg reported.

The Department of Transportation, for its part, "remains committed to working with Congress and Mexican officials to identify a mutually agreeable path forward," DOT spokeswoman Olivia Alair said Monday.

"We believe we can find a solution that both addresses the concerns voiced by some in the U.S. Congress, and keeps us compliant with our international trade obligations," she said, adding that DOT "is developing a new proposal that will meet congressional concerns as well as our NAFTA commitments."

 

 

 

Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks totaled 11.522 million in July. While this total represents a 3.4 percent increase over the June total, it is in the same range as sales reported from March through July. 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. The federal subsidy momentarily boosted sales back to 14.1 million annualized in August 2009, but upon expiration sales dropped back below 10 million and have slowly regained some of the lost ground since then. July sales were 18.7% above the early 2009 run rate. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.