Trucking Market Update - 11 Nov 2019 (Featuring Eric Starks)

This episode of the Trucking Market Update is hosted by FTR’s Vice President of Trucking, Avery Vise and includes an extended conversation with FTR's Chairman & CEO, Eric Starks.

As this information is presented, you are welcome to follow along and look at the graphs and indicators yourself by downloading the presentation.

Download the PDF or PowerPoint: Click Here

Transcript

FTR 0:02

Welcome to the trucking market update on the state of freight podcast brought to you by FTR where we share timely transportation intelligence with you on a weekly basis. The trucking market update is hosted by FTRs, vice president of trucking, Avery Vise. As Avery presents the information in the podcast, you can follow along and review the graphs and indicators by downloading the PDF or PowerPoint of the presentation from our podcast landing page, a link to the PDF and PowerPoint as available now@www.ftr intel.com/podcast from there, you can also find past episodes and downloads for the trucking market update as well as the weekly rail market update with Todd Tranausky and much more. That link again is www.ftrintel.com/podcast welcome to FTRs weekly trucking market update. I may revise vice president of trucking.

Avery Vise 0:57

This is episode 38 for the week of November 11th, 2019 a reminder that you can download a PDF with graphics related to today's discussion@www.ftr intel.com/podcast you can also download a PowerPoint presentation that includes images of those same charts you can use in your own presentations today. We'll recap last week's spot, market data, energy prices, and weekly metrics. After that, we have just one economic indicator to discuss this week job openings, but no worries. We will use the extra time for a conversation with FTRs chief executive officer, Eric Starks about the state of the economy and freight markets. Okay, let's talk about week 45 of the year in the spot market. The overall numbers did not change much, but we'll see a somewhat different picture when we drill down into the segments. The total market demand index, which is the ratio of load availability to truck availability was down a bit from the unusually strong increase the week before. Load availability didn't change much, but truck availability was a little higher. Tetell spot rates were off by nearly one and a half cents per mile excluding fuel surcharges. This was a weaker than, uh, this was weaker than seasonal expectations and the gap between current rates and the five year average grew to slightly around 14 cents. We saw in week 45 a similar dynamic as week 44 in that drive and in refrigerated clearly were stronger than flatbed drive and refrigerated rates. Both were higher 3.2 cents and 4.7 cents respectively than the prior week. The increase we're driving in was basically in line with seasonal expectations. So the gap between current rates in the five year average stayed at around 20 cents. The refrigerated rate increased just a bit stronger relative to average. So the gap narrowed to less than 20 cents from more than 22 cents the week before the drive and market demand index was down slightly from the prior week's large jump, but the refrigerated MDI was even higher than it was the week before. And that was a week that had also seen a dig jump. In both cases, truck availability was higher. The difference was that load availability for drive and was basically flat while refrigerated load availability was sharper, was sharply higher as it typically is in the run up to the Thanksgiving holiday on average week 46 is the peak for load availability for the entire year. Flatbed spot market metrics were weaker in week 45 after rising slightly in week 44 the flatbed market demand index fell to its lowest level since week six of 2017 however, it is still well above the five year average for the week, which helps demonstrate just how strong the flatbed market has been in recent years, load availability was down but still above the five year average and truck availability Rose to its highest level since week 21 of this year, but it remains slightly below the truck capacity in the spa market last year in certainly well below the five year average. As with the MDI flatbed rates fell to their lowest points since early 2017 it's important to recognize though that until week 44 flatbed rates had been basically holding steady at a time of the year when they normally are easing, so it's not alarming to finally get some rate decreases. However, we will watch closely to see whether this is the beginning of a trend toward flatbed softening faster than seasonal expectations. The gap between current rates and the five year average is now about 10 cents, which is slightly wider than it was last week. So to recap, all three segments of the spot market are moving generally in the seasonal patterns, but we still have lower than average rates in lower than average capacity. Okay, let's talk about fuel and petroleum. So we recently had seen crude oil prices drift just a few dollars higher and well, they're just sitting there now over the week ended November 11th that closing prices for West Texas intermediate varied by less than a dollar and ended at just under$57 a barrel, perhaps reflecting the recent slight increase in crude prices. Diesel was up 1.1 cents to$3 7.3 cents for the weekend in November 11th year over year, diesel prices are down 20.4 cents. Moving on to economic indicators, mortgage rates were down slightly to 3.69% on a 30 year fixed rate mortgage, which as it has been for many months now is pretty attractive in at least a is a positive contributor to home sales in residential construction. Perhaps not necessarily offsetting other factors. A weekly claims for unemployment insurance were down by 8,000 but the four week moving average was actually up by 250 okay. As I mentioned earlier, we have just one monthly indicator to discuss job openings, so in September job openings were down about 275,000 from the revised August figures to a 7.0 2 million. That's the lowest number of job openings since March, 2018 which was a period when job openings were surging. March, 2018 also was the first time in the nearly 20 years that the Bureau of labor statistics has reported job openings that the number of job openings exceeded the number of unemployed individuals and that's a situation that has continued since that point. It seems clear that job openings have peaked in the near term, but there are a couple of things we need to mention. To put this in perspective. First, the numbers of unemployed people fell from August to September by almost exactly the same number as the number of job openings fell. So the gap that has been in place since March of last year, as I mentioned, remains also the number of job openings in September. It's actually fairly close to the number BLS initially reported for August. The latest data revised August openings sharply higher, so it's a while. September is a considerably lower than August. August, of course, was revised higher. In any event, the job openings figures do reinforce a picture of a labor market that remains strong, but one in which the growth rate is almost certainly decelerating. This is not necessarily worrisome, but with the industrial sector flattening out or potentially worse, uh, after a couple of strong years, we are increasingly dependent on consumer spending to bolster the economy and freight volumes. Okay. Before we bring in Eric Starks to talk about the state of things, look some up the data for the week, drive and, and refrigerated spot rates were higher. Flatbed rates were lower, crude prices were stable in the mid to upper$50 per barrel range. These oil prices Rose by about a penny a gallon. Mortgage rates were down slightly weekly claims for unemployment. Uh, we're down for the week, um, but up slightly over four weeks in job openings for September, we're down from an upwardly revised figure four. So Eric, we are in November. We're almost to the end of the year. What's your assessment of the freight markets right now?

Eric Starks 9:26

Yeah, it's still a mixed bag. I mean, we're seeing some things that seem to stabilize a little bit. But when you look at the disconnect between what's happening to the rail space and you see what's happening in the truck space, there's a distinct difference. There seems to be where we've kind of found a floor for trucking, but the railroad data keeps suggesting that things continue to ease back. So it's not consistent. I think that there's a couple things that are happening. One is when we look at what's happening within manufacturing, so manufacturing is pretty flat by and large. It's been down to flat. Numbers have been below that 50 reading. Industrial productions kind of been bouncing along, but ultimately I think when you look at what businesses are doing, the railroad business is very much tied into business activity and what's happening in the raw side. That continues to be pretty weak. We just haven't seen anything change yet. But the consumer market continues to hold up. And I think some of that is helping on the trucking space. Where we're seeing, again, another part of inconsistency is on the trade side and I think that's something that we probably need to really delve into a little bit more to better understand what's happening there.

Avery Vise 10:53

Yeah, it's interesting. You know, in last week's podcast I looked at the full a US goods report data. And you know, we hear a lot of the buzz is about, well, Vietnam is growing so much for the first nine months it's up, you know, total exports and imports are up about 31%. But when you look for all of Asia, it ain't nearly enough. I mean, in fact, even excluding China, Asia has basically gone flat. When you look at the totality of Asian we're down. So it's interesting because I think a lot of people have been focusing on the resourcing, but it hasn't been enough. I mean we're still definitely down in exports and we're down in imports. So it's kind of scary business.

Eric Starks 11:45

I agree with you. I think it's more fundamental than just a sourcing and where things are going. I think the global slowdown is starting to have an impact. So when you add in the whole tariff situation, you add into changes in trade and what that looks like, it's not a very pretty picture. It doesn't get me overly excited about where we're going right now. So it feels like the US is kind of in its own little bubble and trying to hold its head above water, but we're just kind of bobbing along right now. So as we look forward, I think we need to see global growth start to pick back up. But that uncertainty, when you look at what's happening with trade and then the US wants to go alone into each country and cut a different deal, that makes it very difficult. From a continuity standpoint, it's very hard to see how we can move forward with businesses saying, I want some stability and it just doesn't seem to be happening yet. I think each time the business thinks that there's more stability back into the system then something happens and they go, okay I don't know what to do at the moment. They just kind of stop. So the trade situation is very problematic and more than just resourcing of where things are going. I mean, we're not seeing the sourcing coming back to the US it's just not desirable freight and desirable goods production that we typically would see. There's been some movement to Mexico, but it hasn't changed the fundamental platform of how the businesses are looking. So when we look at the base item, which for us is really trying to understand the freight market, it's not moving the needle and in fact the needle is moving in the wrong in the wrong direction. Because if nothing else, even all things being equal, there's still a lot of inventory out there that has not started to move back. When we look at the inventory to sales ratio data that just hasn't started to move. We'd like to see that starting to move lower but it's just not,

Avery Vise 13:56

Yeah, it's looking a lot like an EKG for someone who has just shuffled off his mortal coil. It's just been flat for about four months and it's not a pretty picture. I want to start, you know we don't talk about rail in this podcast. Obviously it's the Trucking Market Update, but I want to j ust circle back on one thing: When we look at what's happening in rail, it seems like there are some temporary and potentially secular things going on. I mean, obviously coal has been one of the biggest commodities for rail. Grain also, you know, we've had struggles there because of the flooding in the Midwest. One of the things I noted from last week's podcast when we delved into the jobs market, I would probably want to circle back on that with you as well, i s that the rail transportation segment lost more jobs on a percentage basis, even than the motor vehicle production segment and they had a major strike by the UAW against GM. So even even with a strike against GM, rail lost more jobs on a percentage basis than car manufacturing. So just t o g et a quick assessment for people who may be focused on trucking, but w ant t o w ant to a r ail 101 for what's the future of rail. Where are we going from here?

Eric Starks 15:26

There continues to be some struggle. So you've already mentioned the secular decline in coal. That's not going to come back. That's clearly gone. We were also starting to see the impacts on the changes in what's happening on fracking, for example. We have noticed a change in how they source sand. That used to bring a lot of sand from the North and bringing down the white sand and now they're starting to use more and more brown sand. So that changes how that looks. Then also we were seeing a significant amount of movement of refined petroleum that was very helpful for the railroads, that has started to plateau. And so a lot of their growth opportunities started to go away. Another secular thing that has started to happen is that we've seen a shift in things like lumber coming from the Pacific Northwest, which would be typically a rail move and now that that soft lumber's getting produced down in the Southeast. So we see some of those fundamental changes now when we kind of strip out and we just look at what we call economically sensitive freight that the railroads have on the business; we take out coal, you take out the petroleum products, and then you take out grain, because grain is very weather dependent. Then we're still seeing that being very soft and in fact it's below its five year average. So that suggests that there are some other things happening. Obviously the railroads have moved to a precision railroading type of a system in a lot of ways. And that has constrained some of the growth within the system. The expectation is that you get productivity improvements. That started to happen and now it seems to have stabilized. So, we'll kind of see what that looks like. If you see productivity improvements and you see declines in freight, then obviously you're not going to need the manpower that you typically needed. So, there's really no surprise that railroads have been hit on the jobs side.

Avery Vise 17:37

Well enough about rail! I don't want to talk too much about them here. But about the jobs report, I mean we got that on November 1st, a little over a week ago. What are your thoughts on it? Obviously there was a lot fewer job creation, but again we had the GM strike that counts against it. What are your overall thoughts on that report?

Eric Starks 18:02

Yeah, it was really interesting when it came out, I was watching the news and one of the people on CNBC basically said this is a good report. And I was thinking about it and I was like, you know, the number that we saw was not a great number. It was okay. It was a number that basically said that we are in a very limited growth environment. I mean, it would suggest that we'd be in that 1% to 1.5% type of economy. That seems to be about what we're doing. The other data supports that. So I wouldn't call it a good number. I think what it is when we keep asking ourselves, are we in a recession, for an example; When you have a number that is anything above 100,000, you would take that and say that's a good number and says that things are okay. And I think that's really what that data told us. Even when you add back in some of the strike stuff. Let's say 40,000 is an estimate, it could be a little bit higher, it could be a little bit lower, but it still puts you below the historical average that we'd like to see that. We want to see something 200,000 and above. I mean you need to see 200,000 job growth per month just to continue to maintain a 2% to 2.5% Economy. We're not anywhere seeing those types of numbers. We've been seeing something close to that 175, 180 number. That just right now suggests that the economy has eased back.

Avery Vise 19:35

And as I covered in this podcast before our conversation, the good news is job openings still for more than 18 months had been above the number of unemployed, which was the first time that's ever happened. However, down to about 7 million, which is considerably fewer job openings than we were seeing at the end of last year, beginning of this year. So that curve is also beginning to sort of soften and not much of a worry I don't think, except that when we look at the industrial sector, we're not getting help there. So we've been totally counting on the consumer side for pretty much all of 2019. We need that to continue. That's probably a little worrisome right now. We are seeing good mortgage rates and we're seeing some signs of good home buying.

Eric Starks 20:31

I would agree with all that. What this feels like, sometimes you always go with the feeling, it feels like as we moved into 2015 and into 2016. That's where businesses basically pulled away and said, I'm not gonna participate for awhile but the consumer continued to buy. That's exactly what's happening right now. To that point, we're still in a good employment situation by and large, but there really isn't significant pressure in the system. The number of open jobs is a welcome sign. We want to see some pressure in the system, but we haven't seen it on the wage side. There's been a little bit of movement on the wages, but not enough in an environment where we would anticipate in a growing economy and we see unemployment where it is, I think we would typically have concerns that there would be inflationary pressure. That just hasn't shown up to this point. And we definitely, we haven't seen it in the wage growth.

Avery Vise 21:34

Right. In fact, we've settled back down to about the 10 year average. We're just about where we were on the 10 year average. We were considerably higher. Trucking is interesting too because we had been on a clip through today, since we started sort of the surge in may of 2017, where we started out pacing the overall economy and trucking. The average since may of 2017 is about 3.8% year-over-year. Quite good. Much higher than the 3% that we've seen during that same period in the overall economy. However, since may we've been well under that 3.8%. It's still growth. So we're still seeing increases in wages, so let's put that in perspective. But that is decelerating and we would imagine that that's probably going to continue as long as the freight environment stays in this sort of middling no growth phase.

Eric Starks 22:40

Yeah, what's really fascinating is when we look at the freight market itself, trucking specifically, when we talk about things easing back or we talk about a no growth environment, that still means though that we have records amount of freight in the system, right? So what it is is that the growth that happened early on has just started to ease back. And so what we've been doing is we've been playing catch up and we finally caught up. And so the demand pressure that we thought would be there at this point in time if you look at the trajectory, I think a lot of people were saying there is going to continue to be pressure. We didn't think that pressure would continue. And so it has followed a similar path of what we had anticipated. It might be just a little bit weaker than we thought it would be but by and large there's still a lot of freight in the system which is a welcome side. When it starts to decline is when we start having I think more concerns and we just really haven't seen that. It's really flat.

Avery Vise 23:44

Right? I mean know if you look at durable goods orders, capital goods orders, they're all almost at historic high levels. Construction spending is not too far below historic high levels. We've got a lot of volume and I think this is part of what we're seeing in the spot market too, where rates are not very attractive. But we are seeing also not very much capacity. So what that implies is that we have a pretty good volume that is keeping carriers occupied. And conversely, we have a good amount of capacity that's keeping the loads covered and we're just not seeing pressure either way. We're not seeing a collapse in spot rates and we're not seeing them obviously surging but conversely we're seeing very little capacity in the spot market. Some of that probably has to do with failures, but not all of it. Also we never saw any kind of spike in it, which we would have expected to see if it were a loss of carriers because before they went out of business they would be struggling to try to fill those trucks. So it stayed below that side. So it really does feel like, and I think this is what frustrates a lot of people, it feels like a fairly well functioning environment for shippers and carriers on balance. In other words, shippers aren't doing wildly great and neither are carriers. In fact if you look at the two indices that we publish on a monthly basis, they're both very close to zero. The Shipper Conditions Index is a bit above zero and the Trucking Conditions Index is a little bit below zero. So I guess I would just leave it to you if you had any final thoughts for our listeners on what to expect in the coming year.

Eric Starks 25:47

So as we go forward, I think some of the things that I'm going to be paying attention to, and you actually brought up, core capital goods orders. I love looking at that because it helps me understand if businesses are willing to spend. As we look at that going out, I think that that's going to be relatively flat as we move through the latter part of this year and the first part of next year. If we can start seeing business feeling more confident about where things are going, then we should see some upside on that number. But I don't see it accelerating dramatically. What I don't want to see is where the consumer finally says, I'm out. The expectation right now is that we have a kind of a slow growth environment in businesses started to pick up purchasing and that the consumer continues to spend but not at a alarmingly crazy rate. I mean it's just a kind of a status quo top of a type of a market that we're anticipating. Getting back to that 2% type of economic growth. What's fascinating, when I talked a lot of people, is 2% by and large was a very good market for people. It was very predictable and it created an environment where they could better understand things didn't overheat and that up and down rollercoaster didn't seem to be there as much. But we saw that the last year and a half. We've seen the roller coaster ride and now again, we're back to kind of a stability or normalization and the market is flat. This is where the carriers and the equipment suppliers, everybody that's involved in the brokers, that makes them nervous. They are so used to this roller coaster ride up and down. They're like, if we're on the way up I react this way, if we're on the way down I react this way. But when they flatten out, they're like how do I react?

Avery Vise 27:43

Just to wrap up, the one point you made was the consumer needs to pull through and we are about two weeks away from a black Friday and a little bit more than that from cyber Monday so everybody get out there and buy! look forward to talking with you again soon. Thank you.

Speaker 4 28:11

[inaudible]

Avery Vise 28:11

wrap up. Let's look at what's on the docket for episode 39. It's definitely a meatier week for economic indicators. We will have indices on industrial production and manufacturing from the federal reserve inventory data, retail sales and the producer price index for trucking services and heavy equipment. So that's it for FTRs trucking market update, episode 38 for the week of November 11th, 2019 as always, you can download PDF and PowerPoint files accompanying this discussion@www.ftr intel.com/podcast thanks for listening and we hope you'll join us next week.

Speaker 4 28:54

[inaudible].

FTR 28:54

That's it for this week's trucking market update on the state of free podcast. You can find more publicly available state of free content and download the PDF and PowerPoint of today's presentation by going to www.ftrintel.com/podcast FTRs, the leader in freight transportation forecasting in North America, providing consistently reliable reports for trucking, rail, and intermodal transportation, as well as providing demand analysis for commercial vehicle and railcar. For more information about the work of FTR, visit www.ftr intel.com or call us at(888) 988-1699 to find out which publications will best support your business.