The STB released August headcount data for the rails (U.S. operations only) today (9/16/19). Total headcount excluding BNSF declined 8% y/y in August vs. -6% the prior 2 months. This represents the largest y/y decline in nearly 3 years. Total headcount also fell 1.2% m/m, the 10th straight sequential monthly reduction.
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Approximately 46K United Auto Workers (UAW) members at 31 General Motors (GM) plants across the U.S. went on strike just before midnight on Sunday evening (9/15/19). The strike will initially only impact GM’s U.S. plants, but production at GM’s Mexican and Canadian plants will likely be impacted as well in the event of a more prolonged strike. GM is the largest auto maker in North America, with roughly 19% market share of total production in North America and 18% share in the U.S.
Our WR Transport index increased 3.2% last week, materially outperforming the 1.0% rise in the S&P 500. Lots of talk about factors and rotations in the market and our group has been no exception with LTLs (+6%) and TLs (+5%) performing best last week. We also saw some notable mean reversions last week with FDX outperforming UPS by over 500bp and the U.S. rails outperforming the Canadian rails by 800bp. After last week’s bounce, our Transport index is now outperforming again this year, up 22% YTD vs. the 20% rise in the S&P 500.
We spoke with a large manufacturing shipper about recent truck pricing and capacity trends. Our contact continues to experience very loose TL capacity with tender acceptance rates in the high-90s. The shipper recently implemented his C19 TL bid and his TL contract rates fell 7%-8% following double-digit increases last year. He’s preliminarily budgeting slight TL rate increases next year, but he has little visibility yet and has been surprised by the number of brokers still calling him searching for freight and offering depressed spot rates. So spot rates are still 5% below his reduced contract rates. Separately, this shipper is preparing to launch an LTL bid this fall and he expects to realize some cost savings following big increases the past several years from his incumbent carriers. Our contact plans to diversify his carrier base by expanding his use of regional LTLs in the bid.
Earlier this week, we hosted meetings with UPS mgmt. at their headquarters in Atlanta. Our sense is that momentum in 2Q has continued in 3Q as UPS continues to benefit from a surge in Next Day Air volumes. As a result, we’re raising our 3Q volume and margin expectations and our 3Q EPS estimate is 2% above Cons.
Earlier this week, we hosted meetings with NSC mgmt. at their headquarters in Atlanta. Despite weaker than expected volumes, NSC reiterated its C19 and long-term 60% OR guidance as it’s ramping up cost reductions.
Today, the STB issued a notice of proposed rulemaking to make rate cases less costly and complex for shippers: the STB proposed a new final offer rate review for small rate cases and a streamlined market dominance process for all rate cases. We view the proposals as modest changes that shouldn’t have a material impact on overall rail pricing power.
Our WR Transport index increased 1.5% last week, slightly underperforming the 1.8% rise in the S&P 500. The TLs (+5%) were by far the best performers last week, followed by the LTLs and the Integrators (both +2%), while the Rails and Forwarders (both +1%) relatively lagged. We spent the first week back post Labor Day marketing, and there was notably more interest in UPS and FDX than the Rails. So this week, we revisit our views on the Integrators after UPS has outperformed FDX by over 2,000bp YTD and over 3,000bp over the last 12 months. Open the full report for more details…
Pasted below, please find our Friday Freight note. We distribute this product via email each Friday mid-day, so clients have some freight reading material to make their weekends truly worthwhile! Your feedback is always appreciated if you have any suggestions.
Today (09/05/19), the Surface Transportation Board (STB) released its annual review of rail returns on capital. When a rail’s return on capital exceeds the industry’s cost of capital, that rail is deemed “revenue adequate” for the year. While annual revenue adequacy has no near-term regulatory implications, this is an important metric longer term with future implications for potential rail regulatory reform.
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