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And Now Trucking is Suddenly Slowing Down

testosteronepit's picture




 

This comes at the totally wrong time. Trucking had been booming. 2014 had been a banner year. Capacity was squeezed, and rates were rising, so trucking companies went on a buying binge, ordering everything in the book in preparation for red-hot demand in 2015 and more banner years down the road. But then came 2015.

Among businesses, over-ordering and tepid sales caused inventories to rise and the inventory-to-sales ratio to spike to Financial Crisis proportions. And now businesses are trying to bring them down by trimming orders because they’re having trouble selling more to the middle class, the over-indebted modern proletariat whose stagnant incomes are being eaten up by skyrocketing costs of housing, healthcare, college, and the like – and they simply can’t spend that much on shippable items.

And now this is ricocheting through the industry.

Monday after hours, the largest US truckload carrier, Swift, announced earnings. And on Tuesday, it clarified the debacle. It’s suffering from indigestion. The high costs from its red-hot capacity increase – average truck count jumped by 831 trucks in the third quarter from a year earlier – are now slamming into swooning freight demand.

Operating revenue declined 1%, which Swift blamed on the disappearing fuel surcharge, though it didn’t explain why it is getting away with still charging $109 million in fuel surcharges when diesel prices have plunged to rock-bottom.

So it’s cutting back. In its previous disclosure, it announced that its average truck count for 2015 would grow by 700-1,100 trucks. Now it cut the growth down to 500-600 trucks, “given that the freight environment is softer than we originally expected, and peak volumes have not yet materialized as in years past,” it said.

September is the beginning of the holiday shipping season. Volume should be sharply higher. But it’s not happening [read… US Freight Shipments Have Worst September since 2010].

Now it’s down to cost cutting and focusing on “improved utilization” of the fleet. So it lowered its outlook for 2015 earnings, “in light of the items discussed” on September 25, 2015, which is when it had issued its original earnings warning. Its shares have plummeted 49.6% from their 52-week high in December.

“Effective immediately we will enter into a zero fleet growth mode,” Swift CEO Jerry Moyes told analysts. The company “will not be adding any new equipment,” he said, and is considering actually reducing its truck count.

This has already ricocheted to diesel-engine makers: Cummins announced its earnings debacle on Tuesday – revenues down 5.5%, earnings down 10%. It plans to axe 3.7% of its workforce, or about 2,000 folks. It would whittle down its manufacturing capacity and might have to take more aggressive measures, it said. It lowered its outlook further and expects “challenging conditions to persist for some time.”

It blamed Brazil and China. In the US, demand for heavy-duty truck engines had been strong, and orders were expected to reach a decade high, as Swift and others had been ordering trucks from truck makers, and they’d been ordering engines from engine makers such as Cummins. But then the third quarter came around; suddenly Cummins’ sales of heavy-duty truck engines fell 9% year-over-year, and orders plunged.

“It’s evident now that retail sales [of trucks] and production will be down going forward,” explained COO Rich Freeland. Cummins shares, which plunged 8.7% on Tuesday, are down 32.5% from their 52-week high in December.

In this scenario of overcapacity and slack demand, the critical load-to-truck ratio has collapsed to the lowest level in years.

Transportation data provider DAT publishes load-to-truck ratios on a weekly and monthly basis. It calls them “a sensitive, real-time indicator of the balance between spot market demand and capacity.” They’re a function of the number of loads for every truck posted on DAT Load Boards. And here is the key: “Changes in the ratio often signal impending changes in rates.”

Unusually “slack demand” in September – the beginning of shipping season – after “a quiet July and even quieter August,” impacted most of the nation, except in the Pacific Northwest, where “fall harvests of apples, potatoes and onions rolled to market in vans as well as reefers,” explained Mark Montague, a statistician at DAT.

September looks terrible compared to September in banner-year 2014. It still “looks anemic even when compared to the more typical freight movement of September 2013,” Montague said. This slack demand whacked load-to-truck ratios. And that matters:

Load-to-truck ratios signal changes in the marketplace that are usually reflected in truckload rates. In the past five years, a change in the load-to-truck ratio has correlated at a rate of 0.8 with an immediate change in spot market rates, and a sustained change in spot market rates is typically followed by a change in contract rates, as well.

Since late last year, DAT’s van load-to-truck ratios have been on a declining trend. Every month this year, the ratios were below the ratios in 2014. In July, August, and September, the ratios hit 1.8, the lowest in years. In September, the ratio was 42% below a year earlier:

US-Load-to-Truck-ratio-2013_2015-09

The hump in the chart above in February and March 2014 was caused by the tough winter, which “squeezed truckload capacity in the northern band of U.S. states, and load-to-truck ratios spiked.” This caused an immediate increase in spot market rates, and by April, contract rates began to rise. But by December 2014, the party was over. Spot market rates began to fall. Contract rates eventually followed.

So far in October, on a weekly basis, the load-to-truck ratio looks even worse. In the week ending October 24 (published October 27), the ratio dropped to 1.3 loads per truck:

US-Load-to-Truck-ratio-2015-10-weekly

Trucking is a thermometer for the merchandise economy. It doesn’t track consumer expenses like rent or college. But it tracks exports and imports, manufacturing, distribution, retail, and other sectors. It tracks a big part of the real economy. And the sudden slowdown in the trucking industry is another wildly flashing signal in our recession watch.

“It’s been a rotten year for distressed and defaulted loan paper.” That’s how S&P Capital IQ starts out its report on leveraged loans. “Rotten” may be a euphemism. The worst since 2008, as “fear has become a strong undercurrent.” Read… And Now Defaulted “Leveraged Loans” Go Kaboom 

 

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Thu, 10/29/2015 - 00:08 | 6724837 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

time 2 get short on truckin' companiesss

Wed, 10/28/2015 - 20:13 | 6724160 conspicio
conspicio's picture

With fewer truckers, at the least the serial killings should go down.

http://articles.latimes.com/2009/apr/05/local/me-serialkillers5

who knew?

Wed, 10/28/2015 - 19:04 | 6723904 I Drink Your Mi...
I Drink Your Milkshake's picture

Guess these picketers aren't privy to the national stats >>

http://www.presstelegram.com/business/20151026/trucker-strike-begins-at-...

Then there's all those NAFTA truck drivers from Mexico...

Wed, 10/28/2015 - 18:48 | 6723834 RichardParker
RichardParker's picture

A friend of mine is a dispatcher for a trucking company in Chicago (majort freight hub).  Tells me that business has really slowed down over the past 6 months or so and that it is hard to find loads for all of his drivers. 

Thu, 10/29/2015 - 00:00 | 6724821 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

any talks of the economy collapsing means DHS sezz you're a terrorisss!

 

 

 

Wed, 10/28/2015 - 23:21 | 6724762 Midas
Midas's picture

I hate to break this to you, but your friend sounds like a terrorist.  Shit is great, especially in Chicago.

Wed, 10/28/2015 - 17:33 | 6723510 Crocodile
Crocodile's picture

More bad news; that is great news.  Lower inventories and the worse holiday shopping coming full steam ahead can only mean one thing; "everything is awesome"...up with those markets and there is plenty of cash for all the .001%. 

Wed, 10/28/2015 - 18:24 | 6723734 LowerSlowerDela...
LowerSlowerDelaware_LSD's picture

"Trucking is Suddenly Slowing Down"

"I Can't Drive 55" -  Sammy Hagar, 1984

Wed, 10/28/2015 - 14:56 | 6722529 scintillator9
scintillator9's picture

Railroad freight levels are also trailing behind 2012 levels overall.

https://www.aar.org/Pages/Freight-Rail-Traffic-Data.aspx

The freight levels for coal and ore are not very good, and even oil is trailing 2013 levels.

Wed, 10/28/2015 - 16:00 | 6722914 ILLILLILLI
ILLILLILLI's picture

Nice find...! That and the other data give a pretty good graphical picture of the economy.

Wed, 10/28/2015 - 14:39 | 6722407 the grateful un...
the grateful unemployed's picture

they were recruiting guys right out of jail a few years ago. the paid by the mile guys will sometimes leave you hanging, your family might see more of you if you stayed in jail

Wed, 10/28/2015 - 13:54 | 6722048 Duc888
Duc888's picture

 

 

One of my bro's is an OTR trucker.  He's busy, busy, busy...driving for JB Hunt.  He drives a 40 ft Reefer down in NYC to all the boroughs sometimes... crazy route.

Every time I drive past a big truck depot I see signs for hiring from all the top companies....evidently it's damned hard to get anyone who can pass the druggie tests...

Wed, 10/28/2015 - 14:33 | 6722378 scraping_by
scraping_by's picture

That's usually a labor-crushing move. Announce a labor shortage, import lots of foreign labor, let supply and demand work its magic. Works for computer industry, construction, and so forth.

Wed, 10/28/2015 - 14:37 | 6722397 scraping_by
scraping_by's picture

Oops. Meant for Old Dog.

Wed, 10/28/2015 - 12:59 | 6721752 orangegeek
orangegeek's picture

With trucking slowing down, how is barry going to keep importing all those illegal aliens?

Wed, 10/28/2015 - 12:43 | 6721654 Turdy Brown
Turdy Brown's picture

Tuck Frucking!

Wed, 10/28/2015 - 12:41 | 6721641 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

Truckin', like the do-dah man. Once told me you've got to play your hand
Sometimes your cards ain't worth a dime, if you don't lay'em down.gd

Wed, 10/28/2015 - 12:30 | 6721556 the grateful un...
the grateful unemployed's picture

I have noticed the LTFL truckers ABF, Yellow, etc, are not out there quite as much, and the constant stream of UPS trucks coming up my road has slowed. i also notice that some online vendors still charge way too much for freight and handling, but overall free shipping and low gas prices and no traffic. something wrong there

Wed, 10/28/2015 - 11:21 | 6721141 gaoptimize
gaoptimize's picture

Look at the year-over-year on the Baltic Dry Index.

Wed, 10/28/2015 - 11:12 | 6721090 MedicalQuack
MedicalQuack's picture

I can comment on this I think.  Right now you have Bezos and company trying to carve out some money for themselves with software called "Convoy" which is a total loser as it will make the cost you pay to ship your goods more costly too.  You have to remember that Bezos is basically a quant and he and a few others have backed this start up.  Do you need to communicate with truck drivers..hell no, that's what this is in short.  Read about it below, broken model and another code hosing effort to make a few of the 1% richer.  I do cargo claims consulting right now and I see it all. 

http://www.business-standard.com/article/international/bezos-omidyar-bac...

 

Wed, 10/28/2015 - 13:00 | 6721764 the grateful un...
the grateful unemployed's picture

thats interesting, i dont think you should confuse trucking with the taxi business. you pick up a load at A, and then someone puts something on you at B, but A is still your first delivery. thats why these things are dispatched overnight and the routes are planned out. a few years ago UPS went on strike and they won but the drivers were required to handle 150 pounds by themselves. they wanted a piece of the freight cargo business. of course the LTFLs are teamsters and UPS has their own union? sicne they use a lot of temps they get around some of that. when i drove we had to call in, and the dispatch would add things onto the backhaul which makes running a legal logbook nearly impossible. but maybe bezos can get rid of that antiquated regulation.

Wed, 10/28/2015 - 14:41 | 6722418 Fahque Imuhnutjahb
Fahque Imuhnutjahb's picture

Talked with a UPS driver the other day, and he was telling me that they're taking on all kinds of freight that they didn't

used to fool with.  Granted, he was a semi driver and not a van, but he said they are wanting them to deliver palletized

bags of rock salt to apartment complexes, using their lift gates, he said 2500 lb. lots.  They may not have as good of

an inducement to bust their asses as before, because their benefits packages aren't gonna be as attractive.

 

http://www.bizjournals.com/atlanta/morning_call/2015/10/ups-retirees-bra...

Wed, 10/28/2015 - 10:22 | 6720761 Berspankme
Berspankme's picture

Check out a company named Roadrunner.

Wed, 10/28/2015 - 10:39 | 6720871 VladLenin
VladLenin's picture

Beep Beep

Wed, 10/28/2015 - 09:58 | 6720656 r3ct1f13r
r3ct1f13r's picture

What no mention of Lehman Brothers?

Wed, 10/28/2015 - 11:17 | 6721119 Colonel Klink
Colonel Klink's picture

They're both currently working as lot lizards.

Wed, 10/28/2015 - 09:29 | 6720540 Dragon HAwk
Dragon HAwk's picture

Think of the poor truck stop hookers, what will this do to the economy....  were doomed.

Wed, 10/28/2015 - 10:42 | 6720897 VladLenin
VladLenin's picture

Well actually, there's a silver lining. The Prices for BJs, HJs and ZJs will go down.  Condom half full folks...

Wed, 10/28/2015 - 09:27 | 6720519 RaceToTheBottom
RaceToTheBottom's picture

The trucks drive too fast anyway,, I am glad they are slowing down....

 

Oh and BTW, why do we:

1) On the one hand we spend billions of dollars trying to reduce variability in car speeds:

  • Freeway on ramp lights
  • Toll lanes, etc

2) On the other hand we have two speed limits?

  • one for cars, whihc have a fast speed up and slow down cycle/ability
  • Separate and slower one for trucks, which cannot break or accerate as much
Thu, 10/29/2015 - 03:30 | 6725065 GooseShtepping Moron
GooseShtepping Moron's picture

I thought you were about to say "Why do we park in a driveway and drive on a parkway?"

Wed, 10/28/2015 - 10:53 | 6720989 lunaticfringe
lunaticfringe's picture

The people who decide these things are much smarter than you. So just stfu about it.

Did you see the white cop bounce the black girl out of her desk yet?? Now that's fucking news.

Wed, 10/28/2015 - 08:45 | 6720353 mastersnark
mastersnark's picture

Hopefully this will reduce the number of Sikh and Paki drivers on the road. [fingers crossed]

Wed, 10/28/2015 - 16:55 | 6723275 bluskyes
bluskyes's picture

Tired of having them drain the cream dispensers at the truck stops?

Wed, 10/28/2015 - 14:03 | 6722147 57-71
57-71's picture

Unfortunately they will be the ones working. Whitey will be laid off.

Wed, 10/28/2015 - 12:34 | 6721597 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

wow, I can't  believe that you would say this before me.......

 

 

I was gonna say it.

Wed, 10/28/2015 - 08:32 | 6720286 wildbad
wildbad's picture

baltic dry index, trucking, empty container ratios..real world measurements that can't easily be faked.  oh well, we know where we're headed and have know for years from an austrian standpoint.  coming soon to a lot near you.. plenty o cheap trucks and planty o cheap drivers.

Wed, 10/28/2015 - 09:15 | 6720483 Oldwood
Oldwood's picture

And as they can't be faked, should be outlawed. We just can't revive public confidence as long as this kind of data is allowed to be freely communicated. Obviously this is going to require further refinement and redefinition of terms like recovery and prosperity. Lets put a call in to the Ministry of Truth and get this shit straightened out pronto!

Wed, 10/28/2015 - 09:52 | 6720630 BKbroiler
BKbroiler's picture

I'm sure they'll find a way to seasonally adjust a truck.

Wed, 10/28/2015 - 07:23 | 6720112 wanderer9641
wanderer9641's picture

Seeing as how there is a large percentage of truck just to maintain everyday life - food, fuel, necessites, this means that demand for extras to be transported has fallen through the floor.  - As a side note, was into the chainsaw dealer and seen note for christmas trees - wanted 100,000 7 to 12 foot trees in good condition delivered to yard for 30,000 CDN dollars. That is 30 cents per tree. Can not see those loads being filled and transported.

Wed, 10/28/2015 - 10:59 | 6721018 lunaticfringe
lunaticfringe's picture

Appears rather bullish. The ramp up begins at 330 est. Mke sure you get yours.

Wed, 10/28/2015 - 09:30 | 6720551 Muddy1
Muddy1's picture

I've thinking about getting my class A and doig over he roa driving.  Now, I don't know.

Wed, 10/28/2015 - 10:50 | 6720963 MoHillbilly
MoHillbilly's picture

Think  hard. While you will probably always have work, the easy money is gone. A few years ago starting drivers could make 60k now it's around 40. If you want to make 70+ you need 2 million plus accident free miles. Life on the road is not for everyone, you will either love it or it will ruin you. Good Luck

Wed, 10/28/2015 - 12:57 | 6721742 dude59
dude59's picture

And soon the drivers will be idle as new software takes over that job.

Wed, 10/28/2015 - 20:11 | 6724132 Linoleum Blownapart
Linoleum Blownapart's picture

Design and repair seem 2 B the only industrial jobs truly resistant to automation.

Not that there aren't algorithms...

Wed, 10/28/2015 - 17:52 | 6723603 J Jason Djfmam
J Jason Djfmam's picture

Robots.

Wed, 10/28/2015 - 06:42 | 6720046 Arnold
Arnold's picture

Nice.

Now for the wet work.

http://www.bloomberg.com/quote/BDIY:IND

Wed, 10/28/2015 - 06:39 | 6720039 blown income
blown income's picture

The T vee said everything is Awsome!!!!!!

Thu, 10/29/2015 - 00:38 | 6724898 Buck Johnson
Buck Johnson's picture

A major recession and we won't get out of it for at least 5 years, just wait.

 

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