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Cass Index: Despite December declines, transportation shows strong economy

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With all of 2018 in the record books, it is clear that 2018 was an extraordinarily strong year for transportation and the economy, Cass Information Systems said in its December report. ©2019 Fotosearch

ST. LOUIS — December was a month of growing uncertainty and severe declines in the U.S. financial markets as equity valuations fell (the Dow Jones fell from 25,826 on December 3 to as low as 21,792 on December 24), most commodity prices continued to be weak (oil, copper, lumber, etc.), and interest rates declined (after peaking at 3.24 percent on November 8, the 10-year Treasury yield fell from 3.01 percent on November 30 to 2.56 percent on January 3).

Large multi-national companies lowered guidance and blamed slowing rates of activity in Europe and — to a lesser extent — Asia. Trade talks with China continued without resolution, and indications that the Chinese economy is beginning to suffer began to leak out.

But despite all the “hand-wringing” on Wall Street, the transportation economy continues to signal economic expansion, according to the December Cass Information Systems Freight Index Report prepared by Donald Broughton, founder and managing partner of Broughton Capital, a deep data-driven quantimental economic and equity research firm.

“The uninfluenced-by-human-emotion hard data of physical goods flow confirms that people are still making things, shipping things and buying/consuming things, perhaps not at the scorching pace attained earlier this year, but still at an above-average pace,” Broughton wrote.

The report said industry stakeholders were not yet alarmed about the volume of shipments going negative for the first time in 24 months (-0.8 percent in the month of December), in part because December 2017 was an all-time high for the month, and in part because of the stabilizing patterns seen in almost all of the underlying freight flows.

“However, we would be negligent if we did not acknowledge as we did in last month’s report two storm clouds on the economic horizon,” Broughton said.

Those are:

  • The tariffs and threats of even higher tariffs with China, the world’s second-largest economy (even though the latest headlines and tweets suggest that there may be a resolution). Tariffs have throttled volumes in some areas of the U.S. economy, most notably agriculture exports and other select raw materials.
  • The decline in WTI crude in December to as low as $42.50 a barrel. “This did not fall below the marginal cost of production for fracked crude in almost all areas of the U.S., but it made it less profitable and significantly lowered the incentive to drill ever more holes, effectively slowing the rate of growth in the industrial economy,” Broughton said, noting that crude’s recent rally (above $52 in mid-January) gives transportation a momentary sigh of relief. “Continued strength in the price of crude makes us more confident in our positive outlook for the U.S. industrial economy and less worried about global demand,” Broughton said.

“With all of 2018 ‘in the record books,’ it is clear that 2018 was an extraordinarily strong year for transportation and the economy,” Broughton said. “Every month from March to October exceeded all levels attained in all months in 2014 (a very strong year), while February was roughly equal to the peak month in 2014 (June 2014 – 1.201 vs February 2018 – 1.198), which is extraordinary.”

The Cass Expenditures Index is signaling continued overall pricing power for those in the marketplace who move freight.

Demand is exceeding capacity in most modes of transportation by a material amount. In turn, pricing power has erupted in those modes to levels that spark overall inflationary concerns in the broader economy.

With the Expenditures Index up 10.0 percent in December, Broughton said, Cass understood the concerns about inflation, but are comforted by four factors:

  1. Almost all modes of transportation are using the current environment of pricing power to create capacity, which will first dampen and eventually kill pricing power
  2. Spot pricing (not including fuel surcharges) in all three modes of truckload freight (dry van, reefer, and flatbed) has already been falling for six months
  3. The cost of fuel (and resulting fuel surcharges) is included in the Expenditures Index, and the cost of diesel was up 6.6 percent in December (but has been steadily falling in recent weeks, suggesting lower fuel surcharges in coming weeks), and
  4. Whether driven by capacity addition/creation or lower fuel surcharges — or a combination of both (our best guess) — the Expenditures Index was sequentially declining, before sequentially improving slightly (up 1.9 percent in December). The November Index was already down 4.9 percent from its peak in September, and down 2.4 percent from October.

To view the full report, click here.

 

 

 

 

 

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ACT Research: Heavy duty markets at the edge of the precipice

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This graph by ACT Research shows freight growth will decline in 2020 and 2021 before accelerating in 2022, Class 8 truck productivity will remain in the negative through 2022 but will become less each year. (Courtesy: ACT RESEARCH)

COLUMBUS, Ind.  – According to ACT Research’s latest release of the North American Commercial Vehicle OUTLOOK, current data and anecdotes make a strong case that the heavy-duty vehicle markets are at the edge of the precipice.

“Since the start of this demand up-cycle in late 2017, we have targeted this year’s third quarter as the point at which the industry was likely to see production rollover,” said Kenny Vieth, ACT’s president and senior analyst. “That targeting was largely derived from historical precedent, with historical peak-level build lasting between 13 and 15 months. For the current cycle, we date peak build rates to June 2018, so August represents the 15th month of peak-level production.”

Regarding heavy vehicle demand, Vieth said, “At the heart of our cycle duration prediction, carrier profitability and production peaks always lag the freight cycle, so capacity building always accelerates relative to freight growth at exactly the wrong time, every time.

“Large new inventories and deteriorating freight and rate conditions suggest erring on the side of caution remains the right call, and we are warning those in the industry to be prepared for down weeks starting as early as fourth quarter.”

ACT Research is a publisher of commercial vehicle truck, trailer, and bus industry data, market analysis and forecasting services for the North American and China markets. ACT’s analytical services are used by all major North American truck and trailer manufacturers and their suppliers, as well as banking and investment companies.

More information can be found at www.actresearch.net.

 

 

 

 

 

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FTR’s June Trucking Conditions Index up slightly but still negative

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An FTR executive said although rates remain weak for carriers, they appear at least to be stabilizing. (The Trucker file photo)

BLOOMINGTON, Ind. — FTR’s revised Trucking Conditions Index (TCI) showed a significant improvement in June but remained in slightly negative territory at a reading of -0.82, according to FTR.

Strengthening freight demand and lower diesel prices were offset by weak truckload rates and easing capacity utilization plus some higher financing costs that negatively affected carriers during the month.

FTR’s forecast for the TCI is for it to remain in low single-digit negative range into 2020, but some positive readings are possible during 2019.

Details of the revised TCI for June are found in the August issue of FTR’s Trucking Update, published July 31. The ‘Notes by the Dashboard Light’ section in the current issue explains how FTR’s July 2019 Freight•cast model update affects key FTR metrics on the trucking industry, including the TCI. Along with the TCI and ‘Notes by the Dashboard Light,’ the Trucking Update includes data and analysis on load volumes, the capacity environment, rates, costs and the truck driver situation.

“Although rates remain weak for carriers, they appear at least to be stabilizing,” said  Avery Vise, vice president of trucking. “Meanwhile, freight demand appears firmer in recent weeks than in early spring, but the outlook is far from rosy given a softening industrial sector. Our biggest near-term concern, however, is the potential impact of the trade war with China on consumer spending and business investment.”

The TCI tracks the changes representing five major conditions in the U.S. truck market. These conditions are freight volumes, freight rates, fleet capacity, fuel price, and financing. The individual metrics are combined into a single index indicating the industry’s overall health. A positive score represents good, optimistic conditions. Conversely, a negative score represents bad, pessimistic conditions. Readings near zero are consistent with a neutral operating environment, and double-digit readings (up or down) suggest significant operating changes are likely.

As noted, FTR in July completed a major update of its Freight•cast model, including both updated data and enhancements to the methodology. FTR traditionally has treated the TCI as a contemporaneous assessment of overall conditions at a point in time, so we have made very few changes to historical TCI readings. However, given the noticeably different freight volume and utilization metrics following the model update – especially during 2014 through today – we have restated the TCI back to January 2014. The historical revisions also reflect a more robust measure of market rates that FTR adopted in the spring of 2018. Directionally, the old and new TCI are largely correlated since mid-2016, but the updated TCI shows peak conditions occurring earlier in 2018 than the prior metric. Moreover, that peak range was not as strong and was shorter than previously indicated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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MVT Solutions offers no cost fuel efficiency reports

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Fleets currently relying on MVTS results include Hirschbach Motor Lines, Penske Truck Leasing, Nussbaum Transportation, Mesilla Valley Transportation, C.R. England and Charger Logistics. (Courtesy: MVT SOLUTIONS)

LAS CRUCES, N.M. — MVT Solutions, a provider of fuel economy testing and design and development services for the trucking industry, Thursday said that the test reports for its Certified Products are now available on a no-cost subscription basis.

“Receiving MVTS Certification is a mark of fuel efficiency excellence for a product and we feel strongly that the industry should have that information and the supporting test data in a timely manner and at no cost,” said Daryl Bear, lead engineer & COO at MVT Solutions. “In addition, the suppliers of the certified products have confidence that their results are being delivered by a trusted source to companies that are interested in their technologies.”

While MVT Solutions Certified Products’ Test Reports with the detailed test data on the latest fuel efficiency solutions for transportation companies are posted on the company’s website, the new subscription service ensures results are delivered automatically as soon as they are available giving fleets the ability to have the most up-to-date information, Bear said, adding that fleets currently relying on MVTS results include Hirschbach Motor Lines, Penske Truck Leasing, Nussbaum Transportation, Mesilla Valley Transportation, C.R. England and Charger Logistics.

Certified fuel economy testing by MVT Solutions was developed from race car engineering and advanced vehicle test methods using sensors and recording systems that collect data on fuel consumption, aerodynamics, rolling resistance, driver behavior and other variables that affect fuel consumption. The data is analyzed using proprietary methods.

Subscribing can be done via the MVT Solutions website or by following the company on LinkedIn.

MVT Solutions test reports for custom and developmental testing done for fleets or suppliers are released only with the permission of the company and are not part of the subscription service.

 

 

 

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