We spoke with a large retail shipper about current TL pricing and capacity trends. The shipper has seen TL capacity loosen as his primary carrier tender acceptance rates improved to 95%-97% in 4Q and so far in early ’19, improved from around 85% last July/August, and a low of 70%-75% last June. As a result, spot rates have now fallen below contractual rates, although our contact is hardly using the spot market given elevated tender acceptance levels. Given looser capacity, this shipper now expects his contractual TL rates will be flat to down this year after a 10% increase last year. Note that this shipper’s bid takes place in the middle of the year, so the timing of last year’s bid was particularly tough. This shipper is also preparing an Intermodal bid and currently expects a 1%-2% price increase. While our contact normally reduces his Intermodal usage by 50bp-100bp as TL capacity loosens, he is not planning to make any changes this year since he expects improved y/y rail service and drayage availability. Our contact does expect to shift some TL business from for-hire carriers to its own private fleet as the driver market has loosened. Lastly, from a demand perspective, the shipper expects his transportation volumes to increase 5% this year, similar to C18. He’s closely watching the government shutdown, but has not seen any impact on his transportation volumes so far.
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Nice rally to start the year! Our WR Transport index bounced 5.7% last week and outperformed the 2.5% rise in the S&P 500. Just a couple of weeks into the year and our Transport index is already up 7% YTD and outperforming the 4% rise in the S&P. Overall, the TLs (+10%) and Rails (+8%) have performed best to start the year while the non-asset Forwarders (+1%) have relatively lagged.
We spoke with a large chemicals shipper about current TL pricing and capacity trends. The shipper has seen the TL market loosen meaningfully as his tender acceptance rates improved 14 percentage points sequentially last quarter to their highest level since 2H:17. This shipper also noted that spot rates have fallen below contractual rates but he's hardly using the spot market right now since tender acceptance levels are so high. From a pricing standpoint, this shipper's TL rates increased 6% last year and he's currently forecasting a range of flat to +5% for rates this year. Unless the economy re-accelerates, our contact expects rates will be closer to flattish or up slightly. Meanwhile, our contact expects around 2% LTL rate increases this year, down slightly from 2.5%-3% increases last year.
We spoke with a chemicals shipper about recent trends in demand, rail pricing, and service with the Class I rails. Business overall is steady and rail volumes increased slightly last year. Looking to 2019, our contact rail volume growth to accelerate to 4%-5% based on further development of the petrochemical and plastics industries around the Gulf. From a rail service standpoint, our contact is seeing improved line-haul service on UNP and NSC as they implement precision railroading, but local first- and last-mile service is worsening. UNP and NSC have also become more restrictive on the number of cars that they are willing to accept in their yards. Looking ahead, our contact expects both UNP and NSC to reduce crews, park equipment, and consolidate yards. But the changes made by UNP and NSC so far have been more gradual and less painful than the PSR roll-out at CSX in 2017. In terms of rail pricing, our contact is seeing 4%-6% rate increases on average from most of the rails, with the exception of BNSF which has more aggressively been chasing freight with competitive rates. However, almost 70% of the traffic for this shipper is captive, so there are only limited opportunities to shift freight from UNP to BNSF.
We spoke with a contact at the West Coast Ports about recent freight trends. Volume growth has been extremely strong the last couple of months as shippers rushed to move cargo into the country ahead of originally planned tariff increases in the beginning of 2019. But the higher than anticipated volumes have led to operational issues at the port. In addition, warehouses are full and it’s very tough to find rail flat cars and crews. So lots of freight remains on dock at the port and hasn’t yet moved inland. Meanwhile, December port volumes have remained strong despite the tariff pause as overseas production that ramped up couldn’t be suddenly halted. But some ships have slowed more recently to avoid docking around the holidays, so some December cargo could trickle into early January. And with the postponed tariff increase, our contact now expects port volumes to remain strong until Chinese New Year and doesn’t expect as much of a lull in January as previously thought.
We spoke with a large manufacturing shipper about current TL pricing and capacity trends. Our contact’s tender acceptance rates have held steady this peak season around 95%, improved from 90% over the summer. Given looser TL conditions, our contact noted that truck brokers are starting to aggressively go after market share. As a result, spot market premiums have fallen from 50% in July to just 5% on average currently including several lanes where spot rates are now below contractual rates. And looking ahead, this shipper expects spot rates to take a big seasonal step down after Christmas and thus fall below contractual rates on even more lanes. Our contact still expects his TL rates to increase 3% next year, but this is down from his 5%+ expectation two months ago, and he continues to have a downward bias to his expectations. This shipper also now expects just modest intermodal rate increases next year given the looser TL market and continued intermodal service issues. But even with intermodal service issues and lower fuel, our contact has no plans to shift any intermodal business back to trucks next year. Lastly, this shipper is also preparing for an LTL bid and expects rates to increase 4%-6% y/y in C19, decelerated from 7%-9% increases this year.
Another ugly week… our WR Transport index fell another 5.6% last week, materially underperforming the S&P 500 (-1.3%) for the second week in a row. The Integrators (-8%) and TLs (-6%) underperformed the most, while the non-asset Forwarders (-2%) and Rails (-3%) held up relatively best. And with just a few weeks remaining this year, our Transport index is now down 13% YTD, materially underperforming the 3% drop in the S&P 500.
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So much for risk-on following the G20 meetings a week ago. Even with a market rally on Monday and a day off on Wednesday, our WR Transport index managed to fall 8.5% last week, materially underperforming the 4.6% drop in the S&P 500. Literally nowhere to hide last week with the Rails, LTLs and Forwarders each down 8% on average, the Integrators (UPS/FDX) down 11% and the TLs down 12%. And with just a few weeks remaining this year, our Transport index is now down 8% YTD, underperforming the 1.5% drop in the S&P 500.
We spoke with a large consumer products shipper about TL pricing and capacity trends. Our contact’s primary carrier tender acceptance rates have improved over 700bp since the summer to over 90% the past 3-4 months. Tender acceptance levels are now in line with the company’s historical averages and spot premiums have fallen by 30%. Most recently, capacity tightened up during Thanksgiving week, but has subsequently eased again so far in December. While capacity has loosened, our contact already locked in a 4% contractual TL rate increase for 2019. He's also planning to shift around 1%-2% of his volumes from intermodal to TL as intermodal rates are now expected to increase more than TL rates next year.
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