Ccj june 2014
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Transcript of Ccj june 2014
What Freight Flows are telling us about the Economy and What should you be
doing?Donald Broughton Donald Broughton Chief Market Strategist, Managing Director, Senior Equity Analyst Chief Market Strategist, Managing Director, Senior Equity Analyst
June 25, 2014June 25, 2014
Why Slow Growth, No Growth?Why Slow Growth, No Growth?Constant Message of “Be Afraid”Increased RegulationDemographicsDisintermediationUnless you are in:
E-CommerceFrackingIntermodal
Executive SummaryDemand is accelerating, in all modes (Truck,
Rail, Airfreight).Capacity is getting tighter, in all modes
(broadly in Truck, specific areas of Rail, Airfreight).
Pricing power is surging, in all modes (broadly in Truck, specific areas of Rail, Airfreight).
Cap-Ex budgets are being actively revised up, in all modes.
Fracking! Fracking! Natural Gas - Price & Supply Natural Gas - Price & Supply
How plentiful is the supply?
Why is the price so low?Can it stay low for a long time?
Historical US Crude Oil Production – US, TX & ND
Drilling often produces Oil & Gas
Natural Gas Flaring Around 34%, of the natural gas produced, is
estimated to be flared in North Dakota annually
Terrible natural gas pricing and the rapid growth of the Bakken are key catalysts
Rapid build-out required in Natural Gas Midstream assets
Natural gas in North Dakota is liquids rich
Natural Gas Midstream Infrastructure Oneok is spending $1.8 Billion on three gas
plants and gathering systems Each plant will have 100 Mmcf/d capacity Flaring is estimated to drop to between 15-
20% of total production after the three plants are built, from 34% currently. National average is 7%
Real World ApplicationsReal World ApplicationsWho is testing & what are they finding?Major LTL’s Large over the road TL fleets
Who is adopting & in what formats? Local P&D fleets, Utilities, etc.
E-Commerce Increasingly Impactful
100
110
120
130
140
150
160
170
Combined FDX/UPS Ground Volumes4QMA Indexed to CYQ4'98
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Airfreight vs. GDPGDP (right axis)
Domestic Airfreight (left axis)
International Airfreight (left axis)
Source: A4A, BEA, and Avondale Partners
Even The Strategery of Domestic Even The Strategery of Domestic Airfreight has Begun to ReboundAirfreight has Begun to Rebound
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
Revenue Ton Miles (000s)
U.S. Domestic Total Air Cargo Ton Miles(1989 - Present)
Source: A4A
Hope for Change Here…?Hope for Change Here…?
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Revenue Ton Miles (000s)
International Total Air Cargo Ton Miles(1989 - Present)
Source: A4A
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%Asia Pacific Airfreight
Avondale
IATA
3 per. Mov. Avg. (Avondale)
Sources: Airport Authorities, IATA and Avondale Partners
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Avondale APAC Airfreight vs. SIA APAC Semiconductor Billings
Avondale APAC
SIA APAC Semis Billings
Sources: Airport Authorities, SIA and Avondale Partners
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%European AirfreightAvondale
IATA
3 per. Mov. Avg. (Avondale)
Sources: Airport Authorities, IATA and Avondale Partners
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Rail Carloads vs. GDP
GDP (right axis)
Rail Carloads Ex Coal and Ag (left axis)
Source: American Association of Railroads, BEA, and Avondale Partners
180
200
220
240
260
280
300
320
340
360
ThousandsTotal Carloads Originatedby Class I U.S. Railroads
Source: AAR & Avondale Partners
95,000
105,000
115,000
125,000
135,000
145,000
155,000
165,000
Coal Carloads
Natural gas prices have risen markedly in recent weeks given very cold temperatures. We believe coal will continue to improve through Q1,
and are growing increasingly optimistic about utility inventory replenishment in all service territories.
Source: AAR & Avondale Partners
38,000
43,000
48,000
53,000
58,000
63,000
68,000 Chemical Carload Volume
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
Petroleum Carloads vs. North Dakota Oil Production
North Dakota Oil Production Petroleum Carloads
30,000
32,000
34,000
36,000
38,000
40,000
42,000
44,000
46,000
48,000
50,000
Chemicals (ex petroleum) Carloads
Source: AAR & Avondale Partners
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0.0
5.0
10.0
15.0
20.0
25.0
Auto Carloads vs. Light Vehicle Sales
U.S. LVS SAAR Automotive CarloadsWe expect auto volume growth to moderate in the coming months
given higher inventory levels, though we do still expect this category to
grow above GDP.
Source: AAR, Ward's & Avondale Partners
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
Construction Materials vs. Housing Starts
U.S. Unadjusted Monthly Housing Starts
Lumber, Forest, Stone, Clay, Glass Carloads
We expect the Canadian rail embargo on lumber toweigh on volumes here in the short-term
Source: AAR, CensusBureau& Avondale Partners
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
100
125
150
175
200
225
250
275
ThousandsIntermodal vs. Diesel
US Intermodal Units Originated
Avg On-Highway Diesel (left axis)
Source: AAR, DOE & Avondale Partners
Not Just Trucks…Rail System Showing Strain
21
22
23
24
25
26
27
28
29BNSF Train Speeds - Overall
Rail CapEx Re-accelerating
$14,000
$14,500
$15,000
$15,500
$16,000
$16,500
$17,000
$17,500
$18,000
2011 2012 2013 2014E
Class I Rail Capex ($M)
Source: Company Filings and Avondale Partners estimates
+8%
Tonnage Poised to Continue Recovery?
90
95
100
105
110
115
120
125
130
135
140Monthly Truck Tonnage Index (2000 basis 100)
Seasonally Adjusted Data
Non-Seasonally Adjusted Data
Source: American Trucking Association and Avondale Partners LLC
Avondale's Projection
In Tonnage We TrustDomestic Truck Tonnage growing at 8%, but
loads were flat until mid 2013
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
ATA Non-Seasonally Adjusted Truck Volumes3MMA YoY
Tonnage
Total Loads
Dry Van Loads
Source: American Trucking Association and Avondale Partners LLC
Trucking Capacity• Oldest fleet in history (avg age >6 yrs)• No additions to current fleets• Vulture acquisitions• Trades lead to smaller fleets• Regulations shrink capacity further
(CSA/EOBR’s/HOS)• Of remaining fleets, many not able to meet
modern supply chain needs• Failure rates starting to go up again• Transcore Spot Index and Cass TL Pricing Index
both establishing all time highs
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Miles Per Tractor During EOBR Implementation
Source: Company filings and Avondale Partners estimates
Based on population of trucking companies which have already gone through the EOBR adoption process
Q1 is quarter in which we estimate at least 2/3 of fleet was outfitted with EOBRs
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%TL Industry Per Mile Analysis
OR (ex SWFT, fuel and gains) YoY Change - left axis
Cost per company mile (ex SWFT, fuel) - right axis
Total rate per mile (ex SWFT) -right axis
Source: Company filings and Avondale Partners estimates
Not Dead Yet…
$0.90
$1.40
$1.90
$2.40
$2.90
$3.40
$3.90
$4.40
0
200
400
600
800
1000
1200
Truc
king C
ompa
ny F
ailu
res
Total Trucking Failures (on a quarterly basis)vs. Average Retail Diesel Fuel Price (Including Taxes)
Total Trucking Failures
Avg Diesel Fuel Price
Source: Avondale Partners estimates and EIA
Aver
age R
etai
l Die
sel F
uel P
rice
($ p
er g
allo
n)
But Dying Soon?
$0.90
$1.40
$1.90
$2.40
$2.90
$3.40
$3.90
$4.40
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Tota
l Tru
cks
Total Trucks of Companies Failing (on a quarterly basis)vs. Average Retail Diesel Fuel Price (Including Taxes)
Total # Trucks
Avg Diesel Fuel Price
`
Source: Avondale Partners estimates and EIA
Aver
age D
iese
l Fue
l ($
per G
allo
n, In
cludi
ng T
axes
)
Failures Increasing Alongside Demand…Unusual
90.0
95.0
100.0
105.0
110.0
115.0
120.0
125.0
130.0
135.0
140.0
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
ATA
Seas
onal
ly A
djus
ted
Truc
k To
nnag
e
Truc
ks R
emov
ed
Demand vs. Failures
Trucks Removed
ATA Seasonally Adjusted Truck Tonnage
Pricing vs. Demand: 1993-Present
80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160
60
70
80
90
100
110
120
130
Truc
kloa
d pe
r Mile
Pric
ing
Inde
x
ATA
Seas
onal
ly A
djus
ted
Truc
k To
nnag
e In
dex
Truckload Pricing vs. Truckload DemandTruckload Demand Only One Factor in Pricing
ATA SA Truck Tonnage Revenue/mile
Pricing has stayed positive in periods of declining demand as long as
capacity was also declining.
Pricing vs. Demand: 2005-Present
120
125
130
135
140
145
150
155
100
105
110
115
120
125
130
135
Truc
kloa
d pe
r Mile
Pric
ing
Inde
x
ATA
Seas
onal
ly A
djus
ted
Truc
k To
nnag
e In
dex
Truckload Pricing vs. Truckload DemandTruckload Demand Only One Factor in Pricing
ATA SA Truck Tonnage Revenue/mile
Pricinghad generally held or gone up in soft
demand...
Pricing vs. Capacity Reduction: 1998-Present
80
90
100
110
120
130
140
150
160
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Truc
kloa
d pe
r Mile
Pric
ing
Inde
x
Truc
ks R
emov
ed
Truckload Pricing vs. Number of Trucks RemovedTruck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mileIncreases in the rate of
capacity exiting the market have been
followed by strength in pricing -even when demand was weak.
Sources: ATAand Avondale Partners
Pricing vs. Capacity Reduction: 1998-2002Relationship Evident
90
92
94
96
98
100
102
104
106
108
110
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Truc
kloa
d pe
r M
ile P
ricin
g In
dex
Truc
ks R
emov
ed
Truckload Pricing vs. Number of Trucks RemovedTruck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile
Sources: ATAand Avondale Partners
Pricing vs. Capacity Reduction: 2006 - PresentRelationship Evident
125
130
135
140
145
150
155
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Truc
kloa
d pe
r Mile
Pric
ing
Inde
x
Truc
ks R
emov
ed
Truckload Pricing vs. Number of Trucks RemovedTruck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile
Spot Index vs. Capacity Reduction: 1998-Present
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
YoY
Chan
ge in
Spo
t Ind
ex
Truc
ks R
emov
ed
Truckload Spot Index vs. Number of Trucks RemovedCompany Failures Typically Support Spot Market When Demand is Weak
Trucks Removed
YoY Change in Spot Index
Spot Index vs. Contract Pricing: 1999-Present
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-75%
-55%
-35%
-15%
5%
25%
45%
65%
Truckload Spot Index vs. Contract PricingSpot Market Imbalances Tend to Lead Contract Pricing Directionally
YoY Change in Spot Index (left)
YoY Change in Contract Price (right)
“Predictions” for 2014 - 2016
Cheaters still cheat, guard your CSA scoreEOBR’s will have a big impact on capacity and
an even bigger impact on equipment visibilityDriver market gets even tougherTL pricing power of 4 to 6 %Margins for both the equipment provider and
the broker will continue to be under pressureConsolidation in transportation poised to
dramatically increaseHard, durable assets increasingly valuableFracking and natural gas woefully under-
estimated
What Freight Flows are telling us about the Economy and What should you be
doing?Donald Broughton Donald Broughton Chief Market Strategist, Managing Director, Senior Equity Analyst Chief Market Strategist, Managing Director, Senior Equity Analyst
June 25, 2014June 25, 2014