After shipper volume expectations inflected sharply negative last quarter amid the COVID pandemic, volume expectations turned back positive this quarter. Further, 44% of shippers cited lower y/y inventory levels right now, the highest level since 2010. So it seems like we’re setting up for a potential inventory re-stocking cycle.
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Our WR Transport Index fell 2.1% last week, relatively outperforming the 2.9% drop in the S&P 500 and the 4.5% decline in the XLI. The TLs (up less than 1%) nicely outperformed on continued strong TL spot data, while the Integrators (-3%) and LTLs (-3%) both underperformed. The Rails (-1%) relatively outperformed within the group, led by KSU which was up 1% last week and best among the rails despite clearly talking down 2Q EPS estimates. Meanwhile, the U.S. rails relatively underperformed the non-U.S. rails again last week as the market seems to have started discounting the potential for higher corporate tax rates if Biden wins the election. CP, KSU and CNI are now each outperforming the S&P 500 YTD, while CSX, UNP and NSC are now each underperforming.
Our WR Transport Index rose 1.7% last week, slightly underperforming the 1.9% rise in the S&P 500 but outperforming the 0.6% rise in the XLI. The LTLs, TLs and Integrators each rose 5% on average and materially outperformed last week, while the Rails (-1%) were notable laggards. After last week’s moves, the Rails are now down nearly 6% YTD, materially underperforming the LTLs (+21% YTD) and TLs (+8%) so far this year and modestly underperforming the S&P 500 (-4%).
We spoke with a large international freight forwarder about recent ocean and airfreight trends. The forwarder we spoke with now expects ocean volumes for the market overall to decline 20% y/y in 2Q, a little better than its initial expectations of -25%. Our contact expects volume declines will continue to moderate going forward, but they seem unlikely to inflect positive y/y until 2021. During typical downturns, this forwarder noted that ocean rates fall which can lead to higher gross yields. However, that’s not the case right now as we’ve seen a spike in blank sailings this quarter to help manage ocean capacity. As a result, ocean rates were steady during most of 2Q and have spiked the past few weeks, so our contact expects some margin pressure in 2Q and perhaps 3Q. That said, sustained higher ocean pricing should eventually be positive for forwarders.
Last night, Bloomberg reported that the Trump administration is preparing a nearly $1 trillion dollar infrastructure bill as part of its next wave of economic stimulus amid the COVID pandemic. Details on the potential bill are limited at this time, but Bloomberg reported that the initial proposal would reserve most of the money for traditional infrastructure work, like roads and bridges.
We spoke with a contact at the West Coast Ports and a private intermodal marketing company (IMC) about recent import activity and intermodal demand trends. Our port contact is seeing signs of a pick-up with June import volumes clearly better than May as ocean carriers have added one-off sweeper vessels to handle the pick-up in demand. Our contact added that ocean spot rates have bounced off the bottom, and he’s expecting blank sailings in 3Q to fall around 30% sequentially from 2Q. That said, he doesn’t expect port volumes to fully return to normalized levels until some point next year. On the intermodal side, the IMC we spoke with is heavily tied to import activity and noted that volumes have bottomed over the past month but remain challenging. In addition, intermodal spot rates don’t seem to have bottomed yet, while contract bids continue to get pushed out.
Our WR Transport Index rallied another 5.5% last week, outperforming the 4.9% rise in the S&P 500 but materially underperforming the 10.5% rise in the XLI as the value trade continues. The Integrators (+8%) and Rails (+7%) performed best last week, while the TLs (-1%) were notable laggards as the group is acting increasingly defensive right now. Following last week’s move, our Transport index inflected positive and is now up 3% YTD, outperforming the 1% drop in the S&P 500 and the 8% decline in the XLI. The LTLs (+26% YTD) and TLs (+8%) are performing best this year, while the Integrators (-7%) are performing worst.
We spoke with a private truck broker about TL demand, capacity, and pricing trends. This broker saw a 30% surge in volumes in late March and that level of volume has remained consistent throughout May as carriers look to fill their network with brokered freight. Our contact saw very loose TL capacity through April and early May but has seen capacity tighten throughout the end of May. Regionally, this broker has seen capacity tighten the most in the Southeast, Texas and L.A. In addition, gross margins have improved nicely in 2Q and are now back above 15% after compressing sharply in March. But if TL capacity continues to tighten, it could put some downward pressure on gross margins again. From a demand standpoint, our contact is seeing strength from retailers rebuilding inventories as states re-open, and he expects demand to improve further as manufacturing activity begins to pick up more meaningfully.
Our WR Transport Index rebounded another 10% in May, outperforming the S&P 500 by 530bp and the XLI by 440bp. Our Transport index has now bounced back 39% off the bottom in mid-March and is now down just 3% YTD. The group is now outperforming the S&P 500 modestly by 270bp YTD and more materially outperforming XLI by 1,400bp.
Our WR Transport Index rallied another 5.2% last week, outperforming the 3.0% rise in the S&P 500 but slightly underperforming the 6.0% rise in the XLI. The Integrators (+8%), LTLs (+6.5%) and TLs (+6%) performed relatively best last week, while the Rails (+3%) relatively lagged. Our Transport index is now down just 2% YTD, outperforming the 6% drop in the S&P 500 and the 17% decline in the XLI. And since the market bottom on 3/23, our Transport index has rallied 39%, with the LTLs up more than 50% and the TLs up 47% since then.
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