We spoke with a large food & beverage shipper about TL capacity and pricing trends. This shipper was expecting to see at least some TL capacity tightness in 4Q, but so far tender acceptance rates have remained in the mid-90s. In addition, spot rates remain around 15% cheaper than contract rates with very competitive pricing from both digital and traditional brokers. Given continued loose TL capacity, this shipper has pulled forward its 2020 bid and now expects a 3%-5% reduction in TL contract rates next year after a 1% increase this year. That said, our contact doesn't want to be too aggressive with his bid and risk pushing too much freight into the spot market next year if things tighten up. As a result, this shipper is exploring using freight futures from FreightWaves and Leaf Logistics to hedge some spot exposure for the first time, but he's hesitant given such limited liquidity in the market.
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We spoke with a large Canadian crude oil producer about its expectations for crude-by-rail. Starting in December, operators will be allowed to produce crude above their curtailment levels so long as the added production is moved via rail. This curtailment relief can be applied for on a monthly basis and will help address the lack of adequate pipeline capacity. As a result, this producer expects to increase crude-by-rail shipments by roughly 20K barrels per day (bpd) by year-end to 100K bpd. This represents an incremental 12K annualized crude carloads split between both CNI and CP. Given current capacity levels and supply of tank cars, our contact estimates that crude-by-rail volumes could increase another 20K bpd in 2020. Crude-by-rail volumes above this level would require additional tank car leases.
We spoke to a large food products shipper about truck pricing and capacity trends. Our contact continues to experience elevated tender acceptance rates of 98% currently, materially above the 88%-90% he normally experiences in late October and vs. 90% last year. Since capacity is so loose, this shipper did not conduct a peak season bid this year as his primary carriers are accepting virtually every load he tenders, which is unusual. Our contact is in the middle of his annual TL bid for next year, and he’s expecting high-single digit contract rate reductions for C20. This shipper added that he could see even bigger reductions next year if he expands his use of digital freight brokers further. In addition to lower contract rate, this shipper is also improving his fuel surcharge mechanism in this year’s bid, which will provide additional cost savings. Lastly, given the environment, this shipper plans to shrink his Dedicated fleet.
We spoke with a large consumer products shipper about recent TL capacity and pricing trends. This shipper continues to see a loose market with tender acceptance rates holding near 99% through the third quarter. This shipper conducted a bid in July and reduced his TL rates by 5% on average, even as he shifted about 5% of his business from brokers to asset-based carriers. Our contact still uses brokers for around 10% of his TL spend, and he's increasingly working work brokers who own or control their own trailers so he can take advantage of drop and hook capabilities. Looking to peak season, this shipper expects volumes to be flat to slightly up and doesn't expect meaningful pricing surcharges in the fourth quarter.
We spoke with a private 3PL about recent TL pricing and capacity trends. Our contact is currently seeing TL tender acceptance rates of 97%-99%, at YTD highs despite being in peak season. For comparison, our contact’s tender acceptance rates typically fall to 87%-92% in mid-October. Our contact reduced his TL contract rates by 2%-6% this summer, and he’s currently moving spot shipments 5% below his reduced contract rates. Looking ahead, this 3PL is preliminarily budgeting for flat contract pricing in C20. Our contact also conducted an intermodal bid this summer and lowered his rates by 1%-2%. However, he’s moving much less intermodal volume this year since TL is cheaper than intermodal on a bunch of lanes currently. Looking out to next year, he’s expecting his intermodal volumes to increase 1%-2% y/y.
Over the past 2 weeks, we conducted our quarterly lunches in NYC and Boston with ~75 investors. In today’s note, we compiled the survey results from our lunches to gauge 3Q earnings expectations and sentiment broadly on the transports including favorite sub-sectors, top long and short ideas, and transport pricing/volume expectations.
Shippers expect their same-store shipment volumes to increase 1.8% over the next 12 months, the lowest expectation in the past 13 quarters. Meanwhile, shippers continued to cite higher year-over-year inventory levels and inventories above targeted levels. So we don’t expect a big recovery in near-term freight volumes.
Our WR Transport Index fell 3.2% last week, badly underperforming the 0.3% drop in the S&P 500. The LTLs (-5%), Rails (-4%) and TLs (-3%) were the worst performers last week, while the Integrators (-1%) held up relatively best. After last week’s move, the Rails are now up just 15% YTD and they’re underperforming the S&P 500 (+18%) for the first time all year. If this continues into year-end, it will mark just the second time in the past 19 years that the Rails have underperformed the S&P 500 for a calendar year.
We spoke with a large food & beverage shipper about TL capacity and pricing trends. Our contact isn’t seeing any signs of the TL market getting any tighter, and in fact, it may still be getting a little bit looser. This shipper’s tender acceptance rates remain right around 99% with his primary carriers rarely rejecting any loads. This shipper completed a TL bid in June and realized average savings of 1%, but he’s now re-bidding around 75% of his lanes as he realized he can achieve even more savings in the current market. He now expects additional savings of 3%-5% starting in January but thinks he could possibly see even bigger savings if he delays his bid into early next year when the market should be even looser seasonally.
Freight’s been stuck in a recession all year with negative rail, truck, air and ocean port volumes. But unlike 2017-18, we don’t expect a v-shaped recovery in 2020 without tailwinds from tax reform and ELDs, and with geopolitical uncertainty related to tariffs and the upcoming presidential election. So we expect continued weak freight volumes and slowing pricing trends to continue through at least 1H:20.
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