Trifurcated in a Bifurcated Economy - Federal Reserve Bank ... › ~ › media › others › events...
Transcript of Trifurcated in a Bifurcated Economy - Federal Reserve Bank ... › ~ › media › others › events...
Trifurcated in a Bifurcated Economy: The State of the NA CV Industry in 2016
Kenny Vieth ACT RESEARCH Co., LLC
Chicago Federal Reserve Automotive Outlook Symposium
June 3, 2016
Crosscurrents
Good Not-so-good
ACT Research Co., LLC, Copyright 2016 2
• Consumer confidence
• Job creation
• Household big ticket buys (autos slowing)
• Oil prices (users)
• Decent RDPI
• Low inflation & interest rates
• Stock market
• Rest-of-world economies – China, Brazil
• US$ impact on exports
• Gov’t finance-worldwide
• Oil prices (producers) – & other commoditites
• Beltway blues, ‘16 election
• Geopolitical risk
Lead Indicator Review
ACT Research Co., LLC, Copyright 2016 3
• Yield curve (long/short rate spread): • Healthy, Wide
• Purchasing Managers’ Index: • Improved, recent moves above 50
• Commodity prices: • Off bottom, insufficient to spur investment
• Stock market trends
• Consumer & Business Sentiment surveys: • No traction past ~3 quarters
Key Freight Markets
ACT Research Co., LLC, Copyright 2016 4
• Consumer sectors: • RS: Strong April and ~3% RDPI trend suggest sustainability
• Housing: Lean inventories and strong trend
• Auto: Underlying strength, but volumes appear peaky
• Capital Goods/Machinery: • Popped commodity bubble triggers capex
retrenchment in energy, agriculture, etc.
• Strong US$, soft global markets weaken exports
• Ample domestic capacity
– Excessive inventories add drag
Category Metric Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16
Macro ISM-PMI Index 53.3 52.3 51.6 53.1 53.1 51.9 51.0 50.0 49.4 48.4 48.0 48.2 49.5
Non-Auto Durables Mfg Output** 1.7 0.6 -0.2 -1.0 -1.3 -1.5 -1.4 -1.6 -1.5 -1.3 -0.9 -0.6 -0.3
Consumer Spend, Goods only** 3.5 3.2 3.2 3.5 3.4 3.6 3.7 4.1 3.8 3.9 4.0 3.7 3.1
Residential Const Expend (real) ** 7.4 9.1 11.1 13.4 14.9 14.9 14.0 12.2 10.2 8.7 8.2 8.5 9.1
Financial Dow Jones Transport Stock Index 90.25 87.41 85.93 83.00 80.92 83.90 78.45 77.86 81.28 81.01 75.09 69.07 73.45
Freight ATA TL Loads** 3.4 2.9 0.9 0.6 1.0 1.0 0.8 0.1 -0.4 -0.4 -1.7 -1.8 0.9
DAT Transcore Loads/Truck 4.8 4.7 4.3 4.1 3.6 3.4 3.4 2.9 2.6 2.8 3.8 3.9 2.9
DAT Aggregate Contract/Spot Spread 13 11 18 21 20 24 26 26 27 28 21 24 35
ACT data Cl 8 Cancellations (sa) 2865 2743 2587 2452 2913 3044 4467 4508 2483 4039 3605 4639 3120
Cl 8 I/S ratio (sa) 2.00 2.43 2.68 2.34 2.54 2.64 2.42 2.84 3.29 2.79 3.39 2.58 2.81
Class 8 Inventory Level (000 sa) 58.2 62.3 65.7 67.6 68.8 69.7 67.1 67.3 70.5 70.2 70.6 72.1 68.0
ACT For Hire - Volume less Capacity 41.9 57.1 44.2 47.9 49.6 45.0 52.0 41.1 43.8 45.8 45.4 41.6 44.0
Green Minus Red Tally 3 2 -4 -3 -3 -7 -6 -7 -7 -9 -9 -8 -9
ACT Research Class 8 Tractor Dashboard
Category Metric Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15
Macro ISM-PMI Index 52.1 54.8 55.1 55.4 55.8 55.3 55.6 58.1 55.8 57.3 57.5 54.9 53.9
Non-Auto Durables Mfg Output** 0.7 0.7 1.5 1.9 2.5 2.9 3.3 3.1 3.2 3.4 3.7 3.6 2.9
Consumer Spend, Goods only** 1.8 2.0 2.6 2.9 3.0 3.4 3.6 4.2 4.1 4.3 4.5 4.7 4.6
Residential Const Expend (real) ** 12.6 12.7 13.2 13.3 12.6 10.5 7.8 4.8 2.9 1.9 1.7 3.0 5.1
Financial Dow Jones Transport Stock Index 72.89 73.48 75.75 76.72 81.05 82.02 81.42 84.08 84.51 87.56 91.98 91.40 86.49
Freight ATA TL Loads** 1.6 2.6 1.3 1.7 2.2 2.8 2.6 2.6 3.4 3.6 2.6 3.6 3.6
DAT Transcore Loads/Truck 9.7 10.3 8.9 6.3 5.8 6.9 7.1 7.7 5.9 6.3 6.2 7.4 6.2
DAT Aggregate Contract/Spot Spread 15 11 5 14 16 8 12 17 10 12 7 5 13
ACT data Cl 8 Cancellations (sa) 2028 1941 1494 1685 1693 1594 2849 3552 2537 1286 1975 2145 3936
Cl 8 I/S ratio (sa) 2.09 1.91 2.06 2.25 2.21 2.14 2.45 2.12 2.41 2.44 2.03 2.47 2.09
Class 8 Inventory Level (000 sa) 44.0 45.1 47.8 48.9 51.1 51.9 54.5 54.5 55.7 56.1 56.9 56.1 57.5
ACT For Hire - Volume less Capacity 54.6 58.2 68.8 62.2 61.2 58.6 57.4 53.7 55.2 55.5 56.0 47.3 45.7
Green Minus Red Tally 3 8 8 7 5 8 5 4 4 5 7 5 3
ACT Research Class 8 Tractor Dashboard
ACT Research Co., LLC, Copyright 2016 5
Capacity Rising Faster Than Freight
ACT Research Co., LLC, Copyright 2016 6
ACT For-Hire Trucking Survey
Supply-Demand BalanceFleet Capacity Index Less Freight Volume Index
January '10 - April '16
ACT Research Co., LLC: Copyright 2016
J A J O J A J O J A J O J A J O J A J O J A J O J A J O .'10 '11 '12 '13 '14 '15 '16
35
40
45
50
55
60
65
70
75Index
0
5
10
15
20
25
-5
-10
-15
Improving
Deteriorating
ATA Truck Loads IndexJanuary '03 - March '16 (2000=100)
Source, American Trucking Associations, ACT Research Co., LLC: Copyright 2016
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201660
65
70
75
80
85
90
95
100
105
110
115
120
125Index
0
5
10
15
20
25
30
35
40
-5
-10
-15
-20
-25
YY% Chg.
ATA LOADS INDEX
Y/Y % Chg. (R)
No Traction
ACT Research Co., LLC, Copyright 2016
2015
FY2015 y/y @ 1.0%
Q1’15: 4.0%
Q2-Q4’15: 0.0%
2016
Q1’16: 1.4%
February read
incongruous relative
to other data points
7
DAT Trendlines:
Dry Van Revenue per Mile
January '09 - April '16 (2000=100)
Source: Transcore Commercial Technology Group, ACT Research Co., LLC: Copyright 2016
2009 2010 2011 2012 2013 2014 2015 2016 .0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90Freight Rate ($)
0
10
20
30
40
50
60
70
80
90
100
110
120Contract-Spot Gap (cents)
Contract
Spot
Bar
Contract - Spot Gap
Supply-Demand Imbalance…
ACT Research Co., LLC, Copyright 2016
Widening spot-contract rate gap implies
difficult 2017 contract rate environment
8
DAT Trendlines: Load Per Truck Aggregate
January '03 - April '16 (2000=100)
Source, Transcore Commercial Technology Group, ACT Research Co., LLC: Copyright 2016
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 .20150
2
4
6
8
10
12Loads Per Truck
Loads Per Truck LPT "SA" 3m
Dry Van Rate Pressure Analysis:Contract less Spot rate relative to targe rate spread
January '10 - April '16 (2000=100)
Source, Transcore Commercial Technology Group, ACT Research Co., LLC: Copyright 2016
2010 2011 2012 2013 2014 2015 2016
0
5
10
15
20
-5
-10
Contract Rate Pressure (Cents)
Rate Pressure Analysis
w / 6 m onth lead (6m m a)
Actual Contract Rate YY Chg.
data @ 6MMA
…Implies Lower Contract Rates
ACT Research Co., LLC, Copyright 2016 9
Carriers Buy Trucks to Make Money (and not pay so much in taxes)
ACT Research Co., LLC, Copyright 2016 10
TL Carrier Database:
Net Profit Margin
Q1'05 - Q4'15
ACT Research Co., LLC: Copyright 2016
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 405 06 07 08 09 10 11 12 13 14 15 16
2.0
3.0
4.0
5.0
6.0
7.0%
Actual SA 4QMA
• Some top line misses
• Margins weaker than year-ago but . . .
• Carriers generally hit street earnings targets
• Thru cost discipline
Productivity: Paradigm Shift
ACT Research Co., LLC, Copyright 2016 11
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
1100
1400
1700
2000
2300
2600
2900
3200
3500
3800US Active Pop (000s)
2
4
6
8
10
12
14
16
18
20RGDP $Ts
GDP US Total Pop
Class 8 Total Population & U.S. Real GDP1976 - 2021f
ACT Research Co., LLC: Copyright 2016
FCST
Productivity in Play
Increased Density
Increased Utilization
Some Modal shifting
Online retail shift
Modal Impacts
ACT Research Co., LLC, Copyright 2016 12
E-Commerce as a Percentage of Retail Sales
Q1'2001 - Q1'2016
Source: Federal Reserve Board, ACT Research: Copyright 2016
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 401 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
0
2
4
6
8
10
12
14
16
18
20
22
24
26Percent
Percent x Food
Percent w Food
y/y PPTs
Domestic Intermodal Loadings
2003-2016F
IANA, ACT Research Co., LLC: Copyright 2015
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
4500
5000
5500
6000
6500
7000
7500
8000
8500
9000
Thousands
Domestic Trailers & Containers
NET FREIGHT: ACT Freight Composite
less HD Tractor Productivity
2008 - 2017 (Year/Year)
Source: ACT Research Co., LLC: Copyright 2016
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
2
4
6
8
-2
-4
-6
-8
-10
Y/Y % Chg.
ACT Freight Comp.
C8 Productiv ity
Net FreightHOS
rev.
HOS
OffsetELD
Offset
Productivity Impacts Demand-Side
ACT Research Co., LLC, Copyright 2016 13
Net Freight:
Freight Growth less
Productivity Growth
U.S. Class 8 TRACTORS: U15 Active Population
1990 - 2017f
ACT Research Co., LLC: Copyright 2016
90 92 94 96 98 00 02 04 06 08 10 12 14 16
0
200
400
600
800
1000
1200
1400
1600
1800
-200
-400
-600
Units (000s)
0
2
4
6
8
10
12
14
16
18
-2
-4
-6
Y/Y % Chg.
Tractor Activ e Pop
GDP Y /Y %C
C8 Pop. Y /Y %C
2015-2016 Supply-Side Surge
ACT Research Co., LLC, Copyright 2016 14
At 2.0% GDP, U.S.
tractor-only
demand should be
~155k units/yr.
If productivity is
offsetting freight
growth, tractor-
only replacement
is ~140k
U.S. Class 8
Implied Tractor Fleet Utilization Rate1997 - 2017
ACT Research Co., LLC: Copyright 2016
97 98 99 '00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 .
82
84
86
88
90
92
94
96
98Fleet Utilization (%)
Utilization Target
Fcst.Q1'16 Update (2015 Actual)
HOS
(~+4%pts Tractor)
More Capacity = More Competition
ACT Research Co., LLC, Copyright 2016 15
All utilization model inputs moving in the wrong direction in 2015: Weaker freight
environment; Uptick in productivity trends; Strong Class 8 tractor fleet additions
Utilization
rebound in 2017
predicated on ELD
adoption
productivity hit
(OOIDA v. FMCSA
ELD suit still not
posted on docket)
Used Values Stabilizing
ACT Research Co., LLC, Copyright 2016 16
Used Class 8: Average Retail Selling Price
January '10- Preliminary April '16
ACT Research Co., LLC: Copyright 2016
10 11 12 13 14 15 1620
25
30
35
40
45
50
55
60$(000s) per Unit
0
10
20
30
40
50
60
70
-10
Y/Y % Chg.
Monthly & 3MMA
Y/Y % Chg.
Class 8 Off-peak
ACT Research Co., LLC, Copyright 2015 17
• Soft freight metrics
• Bifurcated economy – 2015-2016 parallel to 1995-1996?
• Industrial correction in a growing economy
– But with the added dimension of a burst commodity price bubble
• Orders hit 4-year low in April, continuing (-40% YTD)
– Even as cancellations fall to 2-year lows
• Still large backlogs thanks to reasonable carrier health
• Payback for excessive inventory builds exacerbates need to cut build rates (-20% YTD)
• Inventory discounting supports sales (-10%)
Order Performance: YTD April
ACT Research Co., LLC, Copyright 2016 18
Tractor Slpr.
Tractor DC
Truck Slpr.
Truck DC
Total Class 8
5-Year NA Mkt. Share
47% 27.3% 0.7% 25%
April YTD Y/Y % Chg. (‘15)
U.S. (81%) -60 -53 +59 -15 -48
Can (10%) -57 -52 +256 -50 -54
Mex. (7%) +96 +28 +166 +165 +98
Exp. (2%) -35 -79 0 -47 -53
NA -51 -51 +89 -13 -42
C8NANO SAAR:
Past 12: 246k
Past 6: 207k
Past 3: 195k
April: 166k
Mixed Signals
ACT Research Co., LLC, Copyright 2016
19
TOTAL CLASS 8: N.A. CANCELLATIONSJanuary '10 - April '16
ACT Research Co., LLC: Copyright 2016
10 11 12 13 14 15 160
500
1000
1500
2000
2500
3000
3500
4000
4500
10 11 12 13 14 15 160
1
2
3
4
5%
TOTAL CLASS 8: N.A. CANCELLATION RATEExpressed as a percentage of Backlog
January '10 - April '16
ACT Research Co., LLC: Copyright 2016
Bad is Relative
ACT Research Co., LLC, Copyright 2016 20
TOTAL CLASS 8: N.A. BACKLOG & BL/BU RATIO
January '10 - April '16
ACT Research Co., LLC: Copyright 2016
10 11 12 13 14 15 16
0
25
50
75
100
125
150
175
200
-25
Units (000s)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19BL/BU Ratio (Months)
BACKLOG
BL/BU RATIO
(Right Axis)
TOTAL CLASS 8: N.A. INVENTORY/RETAIL SALES RATIO
January '01 - April '16
ACT Research Co., LLC: Copyright 2016
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
10
20
30
40
50
60
70
80Units (000s)
INVENTORY:
Actual
INVENTORY:
Fixed INRS Target
Inventory Drag
ACT Research Co., LLC, Copyright 2016 21
Inventory Breakdown:
Assume that “process
IN” is constant @
~5wk/~1.2 mo.
Everything above =
stock
INRS Target @ 250k mkt.
2.2m = ~46,000
April Actual: 65,700
2018: ELD Impact Swag
ACT Research Co., LLC, Copyright 2016 22
Market
Share
Estimates
Implied
Units
ELD
Penetration
Units w/
ELD
Units w/o
ELD
% "Excess"
Miles
Compliance
Productivity
loss
Capacity
Impact
0%
Active Tractor Pop. 1,505,000
Private 47% 708,000 100% 0% -
For Hire: 53% 798,000
Expedited 7% 56,000 100% 56,000 - 0% -
LTL 10% 80,000 100% 80,000 - 0% -
Large TL 25% 200,000 90% 180,000 20,000 0% -
Mid TL 20% 160,000 25% 40,000 120,000 5% 6,000
Sm. TL 28% 224,000 10% 22,400 201,600 10% 20,160
OO 10% 80,000 0% - 80,000 20% 16,000
Total For-Hire Implication 378,400 421,600 42,160
28%
Total Tract Fleet Capacity Impact (%) 2.8%
For-hire Fleet Only Capacity Impact (%) 5.3%
Medium Duty • Cancellations and key ratios (BL/BU and IN/RS) suggest
fundamentals are solid. Can always use more orders.
• Key MD truck demand drivers staying between the lines: – Consumer confidence has subsided a little (election?)
• Confident consumers are more willing to spend
– Construction market (resi/non-resi) is especially important to MD trucks
– State and local governments exhibiting moderate growth
• Classes 4-7 population approaching growth phase – Cl.6-7 at ~160k/yr, Cl.4-5 at ~70k/yr
• Competitive landscape rumblings
ACT Research Co., LLC, Copyright 2016 23
N.A. Classes 5-7 Order Distribution (Data through April 2016, annualized)
ACT Research Co., LLC, Copyright 2016 24
* Total includes Step Vans
Classes 5-7
Orders
Truck
(000s)
Bus
(000s)
RV
(000s)
Total*
(000s)
Past 12 Mo. 170.7 38.6 20.7 238.0
Past 6 (AR) 185.4 36.9 21.7 249.7
Past 3 (AR) 183.7 43.4 26.6 262.7
Apr. (AR) 169.4 39.4 23.7 250.6
Apr. (SAAR) 250.3
MD BL/BU On-Target
ACT Research Co., LLC, Copyright 2016 25
TOTAL CL. 5-7: N.A. BACKLOG & BL/BU RATIOJanuary '10 - March '16
ACT Research Co., LLC: Copyright 2016
10 11 12 13 14 15 16
10
15
20
25
30
35
40
45
50
55
60
65Units (000s)
1
2
3
4
5
6
7
8
9
10
11
12BL/BU Ratio (Months)
BACKLOG
BL/BU RATIO
(Right Axis)
Trailer Demand Remains Robust
ACT Research Co., LLC, Copyright 2016 26
Category Mar-16 Last 13 Mo Mar-16 Last 13 Mo
Backlog 168,193 156,272
Build 26,896 24,163
Inventory 17,729 17,339
New Orders 16,517 15,216
Cancellations 1,536 1,259
Net Orders 14,981 13,911
Shipments 26,761 24,894
Total Trailers
Actual Seasonally Adj.
An old fleet driving strong underlying replacement trend.
Not visible yet, but at some point, gravity will re-exert itself.
Build, Sales & Shipment Forecasts
ACT Research Co., LLC, Copyright 2016 27
2013 2014 2015 2016 2017
NA Class 8 BU
(000s) 245.8 297.1 323.3 236.0 239.5
NA C5-7 RS
(000s) 190.6 212.3 226.8 237.2 240.5
U.S. C8 RS
(000s) 187.6 224.0 252.9 201.5 198.0
U.S. C5-7 RS
(000s) 167.7 187.9 203.8 215.2 215.1
U.S. Trailer FS
(000s) 234.4 268.7 307.7 296.1 275.3
ACT Research Company, LLC 4400 Ray Boll Boulevard
Columbus, IN 47203
Phone: (812) 379-2085 Fax: (812) 378-5997
e-mail: [email protected] www.actresearch.net