Transportation reviews 2010
January
Freight Transportation 2009 Review
William Greene and Adam Longson with Morgan Stanley released a review of the 4th Quarter of 2009 and have shared this with us. While looking primarily at stock prices, we thought you might find this interesting.
Updating Estimates: Holiday strength suggests utilization surprises, but pricing is slow to follow. We updated our TL and UPS EPS for the latest fuel prices and industry trends. In general, we expect 4Q09 TL results to outpace consensus with JBHT, WERN, and KNX as the most likely beats. Given strong holiday demand trends and atypical strength in our TL freight index, we’ve raised our expectations for TL utilization and expect miles/truck to increase year to year for most carriers. That said, TL pricing did not appear to benefit nearly as much in the quarter. Year-to-year pricing declines should improve from the 3rd Quarter 2009 lows on easy comps, but positive year-to-year pricing trends may not materialize until mid-2010.
April 2010
John Larkin Releases Views of Truckload Carriers
As the First Quarter of 2010 ended, John Larkin, CFA Managing Director, Stifel Nicolaus Transportation & Logistics Research Group surveyed approximately 25 of the largest truckload carriers in an Internet-based survey to test our view of the current trucking environment. The following bullets represent our key takeaways from the results:
Most truckload carriers surveyed have seen volume improvement in 2010 that has been at least slightly better than the typical pattern of seasonal volume improvement.
Carriers voiced mixed opinions on whether the recent improvement in volume will prove to be sustainable. On average, the carriers we surveyed anticipate that volumes will continue to recover but anticipate that the pace of the volume recovery will moderate.
Roughly half the carriers surveyed have seen a surge in capacity reduction. Most carriers claimed to have experienced at least some capacity tightness in 2010; however, most carriers citing tight capacity have experienced it in certain locations/lanes, rather than across the board. Most carriers surveyed do not plan to add tractors to their fleet in 2010.
Most carriers expect higher rates in 2010, but the most concrete evidence of rate increases is present for spot pricing only. In the past several months, more than half the carriers surveyed have experienced adverse adjustments to fuel surcharge recovery mechanisms and/or shipper payment terms.
June 2010
Freight Index Rose 0.3 Percent April from March
The Freight Transportation Services Index (TSI) rose 0.3 percent in April from its March level, rising for the third consecutive month, the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported recently
BTS reported that the Freight TSI index has risen 4.9 percent over the last 11 months, starting in June 2009, after declining 15.3 percent in the previous 10 months beginning in August 2008. The index has increased in nine of the last 11 months. The index started 2010 with a decrease of 1.4 percent in the first four months.
The Freight TSI measures the month-to-month changes in freight shipments in ton-miles, which are then combined into one index. The index measures the output of the for-hire freight transportation industry and consists of data from for-hire trucking, rail, inland waterways, pipelines and air freight.
The April Freight TSI of 98.1 is a 4.9 percent increase from the recent low of 93.5 reached in May 2009. In May 2009, the index was at its lowest level since June 1997. The Freight TSI is down 13.1 percent from its historic peak of 112.9 reached in May 2006.
Morgan Stanley Proprietary Truckload Freight Index Update
Morgan Stanley Proprietary Truckload Freight Index provides a periodic update of real-time
changes in the truckload supply/demand balance as measured by our proprietary truckload Freight Index.
What’s New?
As of June 26, the improvement in our proprietary index has stopped. Readings have trended lower in recent weeks, even when adjusted for seasonality, and remain at all-time lows for June. Signs of a June swoon emerging for truckload carriers. While the broader market has
focused on incremental improvements in April and May data points, June could be a stark
contrast. Remember that gasoline prices are up 20 percent since May (35 percent since April), and the resulting fallout may be weighing on consumer spending and truckload demand. Similar to the ATA’s latest seasonally adjusted (SA) tonnage data, our index reported a bottom in the dry-van truckload market in April with marginal improvement in May. However, with trends in our index deteriorating throughout June, Ross expects to see some slowing in the pace of
improvement, or even a decline, in the June SA truck tonnage numbers.
We worry that consensus may be too optimistic about a near-term recovery in the TL market.
We continue to believe a slow recovery will produce a more muted truckload cycle (see our June 11 report, Truckload: Cyclical Upside, but Secular Disappointment), and the latest trends in our index only give us greater conviction. Carrier cost control could certainly surprise in 2Q09, but given the new weakness in June, utilization and pricing may come below expectations (we expect rate declines to trough in the 2nd and 3rd quarters.
Bureau Releases Freight Transportation Services Index, Shows Slight Increase
The Freight Transportation Services Index (TSI) rose 0.4 percent in July from its June level, rising for the second consecutive month, the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported.
BTS reported that the Freight TSI has risen 5.0 percent over the last 14 months, starting in June 2009, after declining 15.3 percent in the previous 10 months beginning in August 2008. The index has increased in 11 of the last 14 months. Through the first seven months of 2010, the index declined 1.3 percent.
The Freight TSI measures the month-to-month changes in freight shipments in ton-miles, which are then combined into one index. The index measures the output of the for-hire freight transportation industry and consists of data from for-hire trucking, rail, inland waterways, pipelines and air freight.
The July Freight TSI of 98.2 is a 5.0 percent increase from the recent low of 93.5 reached in May 2009. In May 2009, the index was at its lowest level since June 1997. The July Freight TSI is down 13.0 percent from its historic peak of 112.9 reached in May 2006.
Trucking rules and regulations
February 2010
Federal Ban on Texting for Commercial Truck Drivers Now in Place
The Department of Transportation announced federal guidance to expressly prohibit texting by drivers of commercial vehicles such as large trucks and buses. The prohibition is effective immediately.
Federal Motor Carriers Safety Administration (FMCSA) research shows that drivers who send and receive text messages take their eyes off the road for an average of 4.6 seconds out of every 6 seconds while texting. At 55 miles per hour, this means that the driver is traveling the length of a football field, including the end zones, without looking at the road. Drivers who text while driving are more than 20 times more likely to get in an accident than non-distracted drivers. Because of the safety risks associated with the use of electronic devices while driving, FMCSA is also working on additional regulatory measures that will be announced in the coming months.
March 2010
Durable Goods Orders Rise for Third Month
- Durable goods orders rose for a third straight month in February, the Commerce Department said Wednesday.
- The 0.5% increase followed a revised 3.9% increase in January that was higher than first reported.
- Excluding transportation equipment orders, which tend to be volatile, orders rose 0.9%.
- The boost was led by a surge in demand for commercial aircraft and higher demand for machinery and metals.
- Economists had forecast orders to increase 0.6%, Bloomberg reported.
- Durable goods include large items such as refrigerators and air conditioners. Trucking is a major beneficiary of durable goods manufacturing, hauling both components and finished goods.
Agency Will Modify CSA Calculation to Include Miles Traveled
During a recent National Industrial Transportation League forum, Administrator Anne Ferro of The Federal Motor Carrier Safety Administration, said the agency will change the way it-calculates a fleet’s crash risk under CSA 2010.
The change which involves using vehicle miles travelled in addition to the number of trucks a fleet owns to calculate the risk factor. This was advocated by the trucking industry to ensure that this factor was included in the matrix.
Federal Motor Carrier Safety Administration (FMCSA) reevaluating carrier safety and fitness
The Federal Motor Carrier Safety Administration (FMCSA) is looking at safety and how it will evaluate a carrier’s safety fitness in an entirely new way. All signs indicate that CSA 2010 will begin rolling out nationwide in November/December 2010. CSA 2010 will assess each carrier’s safety performance in seven Behavior Analysis and Safety Improvement Categories (BASICs). This new system will affect how you evaluate a safe carrier today and how you will need to evaluate the data in the new CSA 2010 system.
Transportation forecasts
February 2010
Small-Business Index Improves for First Time in Three Months
Confidence among U.S. small businesses increased in January for the first time in three months as the outlook for sales improved, the National Federation of Independent Business reported.
The group’s optimism index gauge rose to 89.3, the highest level in 16 months, from 88 in December, Bloomberg reported.
The advance left the measure close to the 2009 low of 81 reached in March, which was second only to a 1980 reading as the lowest on record, Bloomberg said.
“Optimism has clearly stalled in spite of the improvements in the economy in the second half of 2009,” William Dunkelberg, chief economist at the NFIB, said in a statement.
Three of 10 companies surveyed said a lack of sales remained their biggest concern even as the demand outlook turned positive for the first time since January 2008, the month after the recession began, Bloomberg reported.
Most small businesses expect profit and employment to decline, showing why the Obama administration has announced new plans aimed at providing credit and tax breaks to small firms, Bloomberg said.
Council of Economic Advisors Forecasts 3 Percent Growth In GDP
A report by the Council of Economic Advisors states that the economy will continue to gradually recover, with the unemployment rate expected to stay about 10 percent for the rest of this year, and then fall to 9.2 percent next year and 8.2 percent in 2012.
Overall growth is expected to be about 3 percent this year before jumping to 4.3 percent for the following two years.
From a transportation standpoint, the report forecasts that exports are expected to rise rapidly as the global economy recovers in much the same way trade fell faster than gross domestic product during the recession. The report also discussed about the benefits of strengthened trade ties with countries in East Asia because their fast-growing economies will lead to more demand for U.S. goods, especially as they try to stimulate more domestic consumption and investment.
Council of Economic Advisors Forecasts 3 Percent Growth In GDP
A report by the Council of Economic Advisors states that the economy will continue to gradually recover, with the unemployment rate expected to stay about 10 percent for the rest of this year, and then fall to 9.2 percent next year and 8.2 percent in 2012.
Overall growth is expected to be about 3 percent this year before jumping to 4.3 percent for the following two years.
From a transportation standpoint, the report forecasts that exports are expected to rise rapidly as the global economy recovers in much the same way trade fell faster than gross domestic product during the recession. The report also discussed about the benefits of strengthened trade ties with countries in East Asia because their fast-growing economies will lead to more demand for U.S. goods, especially as they try to stimulate more domestic consumption and investment.
John Larkin Releases First Quarter 2010 Transportation Earnings Preview
John Larkin CFA, Managing Director of Stifel Nicolaus Transportation & Logistics Research Group has released his First Quarter 2010 Transportation & Logistics earnings preview where he outlines the various themes, he believes best defined the quarter along with brief updates on each sector of the Transportation & Logistics marketplace and each company under our coverage. The following are his main takeaways from the quarter:
Freight demand continues to modestly strengthen but sustainability remains in doubt; First Quarter 2010 contract pricing is remarkably competitive (except in protected sectors); not all, but many lenient lenders/lessors still supporting non-sustainable operations/capacity.
Freight volumes continued to gradually recover in the First Quarter of 2010, but inventory re-stocking, fiscal policy stimulus, and unusually accommodative monetary policy might have provided non-sustainable boosts.
Capacity still declining but at a slower rate than desired as most lenders and lessors remain unwilling to liquidate or repossess rolling stock in this depressed equipment value market; however, freight volumes appear to be nearing current capacity levels; yet contract pricing power is still largely residing in the hands of shippers.
The shape of economic recovery remains uncertain.
U.S. Logistics Industry Poised for Rebound
An annual benchmark released today shows the continued impact of the economic slowdown on the US logistics industry. The 21st Annual “State of Logistics Report®”, released by the Council of Supply Chain Management Professionals (CSCMP) and presented by Penske Logistics, reveals that, continuing the decline reported in 2008, business logistics cost fell to 7.7 percent of US Gross Domestic Product (GDP) in 2009, as compared to 9.3 percent the previous year. Total US logistics costs dropped again last year showing a significant decrease from 2008. Interest rates remained historically low, dropping below those set in 2008.
Since 1988, the report has tracked and measured all costs associated with moving goods through the US supply chain. The report benchmarks key metrics in US logistics such as transportation and inventory-carrying costs, freight volumes, and revenues, giving practitioners a big picture view of the performance of the US supply chain process.
Other key findings
In 2009, inventory-carrying costs continued to fall due to a 4.6 percent decline in inventory and further plunge in interest rates. Pressure on rates and an inability to move goods resulted in warehousing costs falling 2 percent below those of 2008. Although early 2009 saw warehouses full of inventory, by mid-year goods had been drawn down or relocated leaving facilities with empty space. Transportation costs were 20.2 percent lower than 2008 levels, with all modes of transportation being negatively affected. Trucking, which comprises a large percentage of the transportation component, had a 9 percent drop in tonnage carried. Rail carload traffic was also down from the previous year. The Ocean sector reported sharp declines, lowering rates to stimulate business, with some ocean carriers reporting losses for the first time in their company’s history. After heavy losses early in the year, air cargo had a much stronger showing by the latter part of 2009.
Due to abundant capacity and decreased freight to move, the industry has experienced significant pressure to reduce costs. Although shippers have responded with reductions, customers have not necessarily noticed a decline in rates.
Energy outlook 2010
Energy Information Agency Releases Short-Term Energy Outlook
These projections reflect updated expectations for economic activity, with forecasted U.S. real gross domestic product (GDP) growth of 2.8 percent in 2010 and 2.3 percent in 2011, down from the previous Outlook’s growth projections of 3.1 and 2.7 percent for 2010 and 2011, respectively. The 2011 world oil-consumption-weighted real GDP growth rate is also lowered, to 3.3 percent from the 3.6 percent level in last month’s Outlook.
EIA expects that regular-grade motor gasoline retail prices, which averaged $2.35 per gallon last year, will average $2.69 per gallon over the second half of 2010, down 7 cents per gallon from the average for the first half of the year. In 2011, higher projected crude oil prices combined with strengthening refiner margins are expected to boost annual average motor gasoline prices to $2.90 per gallon.
On-highway diesel fuel retail prices, which averaged $2.46 per gallon in 2009, averaged $2.93 per gallon in 2010 and $3.10 in 2011 in this forecast. Refining margins, which have been at their lowest levels since 2003, are projected to average about $2 per barrel higher next year because of growing global product demand and shutdowns of excess global refining capacity.
