The Transportation Recession Spreads

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Hope came unglued all over again.

In January, orders by trucking companies for Class 8 trucks – the big rigs that haul freight on North American highways – plunged 48% from a year ago, to 18,062 units.

The fiasco started in earnest in September. Since then, orders have become “unusually volatile,” as FTR, a transportation analysis and forecast provider, put it in its report. “Unusually volatile” means they are heading south in an unruly manner.

In 2014, orders for Class 8 trucks had reached 376,000 for the year. US truck makers were ecstatic. They cranked up production and hired people. Trucking companies were on cloud nine. Capacity was tight, rates soared. There was talk of driver shortages.

But in 2015, particularly in the last few months of the year, reality was sinking in: oversupply of trucks, weak demand from shippers, and therefore declining spot rates. In response, trucking companies slashed their orders for new equipment. For the year 2015, orders for Class 8 trucks plunged 24.5% to 284,000. “And now,” the report said, “2016 is starting off even weaker.”

The last few months have been crazy. In October, according to FTR, orders for Class 8 trucks plunged 45% year-over-year to 25,000, or a “still impressive” 324,000 orders for the last 12 months.

In November, orders plunged 59% year-over-year to just 16,475, the worst November since 2009. This was “a major disappointment,” FTR explained euphemistically, with “all of the OEMs, except one,” experiencing “unusually low orders for the month.” This brought orders for the past 12 months down to 300,000 units. The report at the time, with a hue of desperation:

The November orders are very concerning. People were optimistic when orders held up well during the summer. Now we get into the peak order season and have the lowest orders of the year. The weak orders are the reason for the recent OEM announcements regarding production cutbacks and layoffs.

Truck inventories are high and retail sales have stalled. The industry would appear to have enough new trucks for now. The manufacturing sector has sputtered and freight growth has slowed. Orders should stabilize soon, but backlogs will be shrinking, necessitating larger production cuts than were previously expected.”

In December, orders plunged 36% year-over-year to 27,800 units, though it was a big jump from November and was “considerably” above the beaten-down expectations. It dragged orders for the 12 months down 24.5% to 284,000 units.



It seemed the desperation bleeding through in November had ceded to hope. The report at the time: “The December orders show there is still solid demand for Class 8 trucks in 2016. This is much welcomed news after the very concerning November total.”

Then came January, and hope came unglued all over again. The 18,062 orders pushed the 12-month total down to a miserable 217,000 units.

These are huge declines in orders for truck and component makers. But trucking companies have no choice. They’re struggling with a tough situation: rampant overcapacity in the face of weak demand.

Transportation data provider DAT tracks national spot market demand for trucks and available capacity via its load-to-truck ratio, which it calls “a sensitive real-time indicator” of the balance between the two. The ratio shows where rates might be headed.

In January, the load-to-truck ratio for van-type trailers fell to 1.9, down 32% from January 2015, down a dizzying 57% from January 2014, and down 21% from January 2013.

The whole equation unraveled in May last year when the 2015 ratio (red line), which had been solidly below 2014 levels (blue line) all year, suddenly dropped even below 2013 levels (green line). January 2016 is the circled dot at the bottom left:

US-Trucking-Load-to-Truck-ratio-2013_2016-01

These are the load-to-truck ratios for vans. Similar scenarios, only worse, are transpiring with flatbed demand and refrigerated van (reefer) demand. DAT’s flatbed load-to-truck ratio was 8.6 in January, down 32% from January 2015 and down 50% from January 2014. The reefer load-to-truck ratio, at 4.5, was down 51% from January 2015 and a stunning 68% from January 2014!

This is the effect of rampant overcapacity in face of weak demand. And trucking companies are reacting by slashing their orders of new equipment and trimming their fleets. The Wall Street Journal:

On Tuesday, USA Truck Inc., a truckload carrier based in Van Buren, Ark., said it operated nearly 400 fewer trucks in the fourth quarter compared with the previous year. Knight Transportation Inc. said last week it would stop expanding its fleet, and Swift Transportation Co., the largest truckload carrier, said in October it wouldn’t add to the number of vehicles it operates.

With new business drying up, truck and engine makers and their suppliers have already announced big production cuts and layoffs late last year and in January. Earlier this month, it was Daimler Trucks that announced that it would lay off over 900 people at its Freightliner plant in North Carolina and cut production at its Cleveland Truck Manufacturing plant by a third.

This is how the transportation recession at a time of oversupply ricochets through the broader economy.

And some shrapnel hit the restaurant industry, which caught all kinds of heat from other directions. Because plunges like this only occur when something big is going on. Read…  Restaurant Industry Suddenly Tanks, Worst Plunge since the Beginning of the Financial Crisis



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  31 comments for “The Transportation Recession Spreads

  1. B.S.
    Feb 4, 2016 at 2:19 am

    One more reason demand for oil is way down. Trucks burn diesel. Refineries do not need to produce as much as in the past – therefore less need for crude.

    Take trucking, rail, shipping, manufacturing, and others that are demanding less oil and you can see the demand curve for crude go way down.

  2. Jonathan
    Feb 4, 2016 at 4:32 am

    ” “Unusually volatile” means they are heading south in an unruly manner. ”

    Welcome to the disease of politically correct corporate doublespeak where reporting any hint of negativity is a cult-like taboo. How can anyone say that sort of bullshit without dropping IQ points left and right is beyond my comprehension.

    • night-train
      Feb 4, 2016 at 4:44 am

      Right on! We aren’t drowning. We are simply hydrating at an unexpectedly high volume. :)

      • LG
        Feb 4, 2016 at 2:22 pm

        Wait till “great leader ” uses your words at the next “adressing the nation”

  3. rich
    Feb 4, 2016 at 6:11 am

    We keep hearing about the enormous growth of online shopping, yet shipping figures are down. Go figure:

    http://www.rita.dot.gov/bts/press_releases/bts006_16

    • Feb 28, 2016 at 8:55 am

      “We keep hearing about the enormous growth of online shopping, yet shipping figures are down.”

      Couldn’t it be due to higher sales of intangibles (?) like streaming and downloading books, movies and music, or services?

      • Feb 28, 2016 at 10:39 am

        I think you’re asking the right question.

        Brick-and-mortar retail sales are struggling. Online retail sales (includes downloaded videos, music, etc.) are soaring.

        “Consumer spending” is a much larger category that includes not only all retail sales, but also everything else consumers spend money on, such as healthcare.

  4. ERG
    Feb 4, 2016 at 7:13 am

    This piece, and the one on the restaurant business decline really capture the pathetic state of our economy. When these bedrock segments of the economy are sinking there is no way to put a positive spin on where we are – which is dead in the water.

  5. TheDona
    Feb 4, 2016 at 10:15 am

    Port of Oakland lost one of it’s five marine terminals handling container cargo to bankruptcy. Outer Harbor Terminal is ceasing operations. Last month they hosted the largest container ship ever to come to US shores. Interesting harbinger of things to come.

    http://www.wsj.com/articles/outer-harbor-terminal-files-for-bankruptcy-1454375511

    • Feb 4, 2016 at 10:49 am

      Thanks. I missed this one, though I can almost (but not quite) see the tops of the container cranes of the Port of Oakland from where I sit.

  6. Vespa P200E
    Feb 4, 2016 at 10:21 am

    Good ol Dow Theory says Dow Transport Index in doldrums and bear market territory proceeds the Dow. It is down to 7k from 9k a year ago or down 22%.

    Add to this at times worthless Baltic Dry Indes and other shipping indices crawling which also indicate the global economy slowdown…

  7. Ptb
    Feb 4, 2016 at 10:24 am

    It would be interesting to see the latest figures on oil consumption as transport is a big factor. Nice combo for the consumer…production up, consumption down.

  8. TheDona
    Feb 4, 2016 at 10:49 am

    January had the most layoffs in 6 months. This year already calls for massive layoffs in oil sector. Chevron already culled 3,200 last year and will reduce another 4,000 this year. Shell to reduce by 10,000.

    Read all of the planned job cuts here: http://www.dailyjobcuts.com/

    Its not a pretty picture. Norkolk Southern: 2,000. DuPont 5-6K. Sprint 2,500. And of course there is Yahoo… The list goes on and on.

    • Vespa P200E
      Feb 4, 2016 at 11:34 am

      2 of 8 houses on my cul de sac are owned by Chevron employees and we bought our house from Chevron employee transferred to Saudi Arabia. Chevron is known to be a very good company to work for and the hits to San Ramon HQ and Concord will be felt in the housing market.

      These RIFs/job cuts sounds eerily similar to what happened in 2008 and 9. I was RIF’ed from start-up biotech that ran out of OPM (other people’s money – AKA VCs) in 2009 in Seattle area and lived thru painful unemployment/underemployment for 22 months. It was pretty tough to find jobs then and I feel for the thousands of families impacted by job losses…

      In the mean time unlike 2008/9 the market is treading still near all time high. Ironic as market is supposed to look 6-12 months ahead and what’s ahead are declining earnings. Something has to give as no it’s not different this time as QEs did not help 97% of people and NIRP will result in more unintended consequences.

      • Captain KurtZ
        Feb 4, 2016 at 12:17 pm

        Can only think that behind the scenes, TPTB are shit-scared that a penniless, TV-less, living-on-the-street rabble may actually revolt if another banker-led collapse, induced by an overdose of credit/debt….

        So they have to keep levitating these Wall Street numbers because all of those suckers who might join along, since they have been forced into 401ks, might come out and burn the place down too.

        Pay no attention to the rigged casino…. If the container ships and the trucks stop coming, and the shelves are empty, then the party will really begin.

        • TheDona
          Feb 4, 2016 at 1:21 pm

          Being a Prepper is not looking so Tinfoil Hat after all.

        • Steve
          Feb 6, 2016 at 1:02 am

          I have a tin foal wallet, and a preeper. Does that qualify?

      • Steve in Flyover
        Feb 4, 2016 at 6:39 pm

        I was a “worthless taker” for the better part of 8 months around the same time. (Even though I’m supposedly doing a job where “finding talented help” has been a problem for the past 15 years. Fortunately, I was able to string some 1099 deals together long enough to keep the rent paid

        To all of my Republican friends……….if you think unemployment is easy street, offer to get kicked out the door in place of someone else the next time your employer has a “RIF”.

        And, like almost all of the people I know who were kicked out the door in 2007-2009 and managed to find full time work, we are doing the same/more work as we were in 2007, but getting paid 25% less.

        Aren’t all First World/ modern economies essentially “consumer economies” If so, how does a consumer economy “grow”, when the consumers has no discretionary income?

        The idiots in Washington and Wall Street seem mystified by this.

      • Bogapau
        Feb 4, 2016 at 8:38 pm

        My grandfather once told me “if you don’t have the money RIGHT NOW, THAN DON’T BUY It”. Yeah it sucked buying a house that was smaller with less appeal than the neighbor, but at least there is no monthly reminder that controls me and my family. My neighbor is amazing, but there is no gurantee he will continue to be my neighbor. Not by choice, but because of his/her belief that the company they work for is untouchable. Although my grandfather was super conservative and no longer with us, his home (like my home now) has been there and is still there without “obligations”. I recently asked my grandmother what she thinks about her neighbors. She didn’t remember most of them, but named 7 families that she loved. After 50 or so years in the same house, she lost track of the rest. They’re all gone and a guy with a Porsche just moved in. I hope he’s not financing, but if he is, I hope he’s working for a “untouchable” company… Thank you grandpapa for a untrustworthy of govt, weak are those with debt, over conservative are great, and disbelieving of the fairy tale version life is the only way to go lesson in life. You suck grandpa! Actually, I wish you were still here… Be smart people. I’m sure you are, but by who’s standards?

  9. Code7f
    Feb 4, 2016 at 12:53 pm

    I come here everyday to get informed about what is really going on in our economy, and sometimes … or better said, a lot of times I get scared, not because what Wolf reports, but because how far and disconnected the main stream media have kept the general population from what is really going on… it is just mind bogling…
    Wolf, keep up the good work.

    • TheDona
      Feb 4, 2016 at 3:57 pm

      The MSM is controlled by a handful of people to push their agenda. Read about William Hearst who used his paper empire to push his and his cronies agenda and launched “yellow journalism.” He was front and center of the Uniform State Narcotic Drug Act and Reefer madness campaign to assist Dupont but mainly to protect his monopoly of forest products against hemp. Hemp which was until that point used for over 2,000 years as paper, rope, clothes, lighting oil and more. Killing Hemp even, though it did not contain THC, gave him the paper monopoly.

      • Steve in Flyover
        Feb 4, 2016 at 6:51 pm

        The MSM doesn’t live on “Main Street”. All of their neighbors in Manhattan, Long Island, Connecticut, DC are doing great!

        Forget what the PTB say………….look at who is getting the bennies/breaks to find out who the “winners” and “losers” are.

        Winners = Banksters, Venture Cap., Insurance, the Medico/Doctor/Pharmacutical Complex, any entity that influences the government on behalf of the above.

        Losers = Everyone else.

        The current goal of the “free market capitalists” is to find markets with high barriers to entry, generate the conditions where you are the “only game in town”, then screw your captive customer base as hard as you can, without creating a competitor.

  10. Kam
    Feb 4, 2016 at 1:51 pm

    False price signals from Central Banking. TBTF funding the paper/electronic markets which have no connection to the real world- making boom and bust exponentially larger.

  11. LG
    Feb 4, 2016 at 2:26 pm

    My favorite MW article was about
    ” people financing 84 months on cars because their quality is better today” !
    Right!
    Maybe cars gonna realize equity like homes since soon the millenials will live in them!

    • Steve in Flyover
      Feb 4, 2016 at 6:55 pm

      Around here, you can practically buy a condo/small house, for what a big SUV stickers out at.

      Of course, you will be living in an area with only McJobs that pay $10.00/hour.

      A local dealer is bragging on his radio ads that he got a guy with a 491 credit score financed and into a new car.

  12. michael
    Feb 4, 2016 at 3:03 pm

    Kam,

    Your premise is right on. This thing is held together by bailing wire and bubble gum.

  13. Ellen
    Feb 4, 2016 at 7:21 pm

    Gives new meaning to Otis Redding song. Sitting on the Dock of the Bay wasting time!

  14. Hey Driver
    Feb 5, 2016 at 8:01 pm

    I do not know what or who to believe.

    As an owner/operator truck driver, leased to a small west coast based carrier, December and January were excellent months for me.

    I cant find a place to park at night, all the truck stops & rest areas are full early as opposed to say, 2008 when I could park anywhere at midnight.

    The last couple of times I’ve loaded at the Port of Oakland there were trucks backed up on Maritime street in all directions, clear to the freeways.

    DAT is a highly suspect source of information, they only publish data from their load board network which only reflects spot market rates/loads. Our contract rates are solid, the spot market has fallen off a cliff in the past two weeks, yet my most recent market alert from DAT talks about all the load to truck ratios spiking.

    I agree that there is excess capacity, largely due to the huge numbers of immigrants who will haul for insanely low rates while totally ignoring our laws and customs.

    I came here seeking enlightenment and leave even more confused.

    • Feb 5, 2016 at 9:15 pm

      Thanks for your boots-on-the-ground info.

      You’re right about contract rates. They’ve been holding up better. But it’s at the spot market rates where trends become first apparent. If this trend in spot rates continues, it will impact contract rates.

      Note that one of the container port operators at the Port of Oakland just went bankrupt. That might have something to do with trucks backing up into the city.

      Big trucking companies, including Swift and YRC, have reported declines in operating revenues for last quarter. So they too are feeling the pain. And they’ve slashed their truck orders in response.

      Not sure if this is helpful – just some additional info to digest. I wish you well. I hope for the industry and for everyone in it that all the issues are just temporary. (But I doubt that).

    • TheDona
      Feb 6, 2016 at 5:22 pm

      Port of Oakland says truck wait time was due to lack of enough chassis fleets available. Shipping lines divested themselves of carrying them. Long Beach is taking bidders to manage chassis fleet with plans to add 3,000 eventually.

      http://www.joc.com/port-news/us-ports/port-long-beach/long-beach-preps-chassis-fleet-ahead-peak-season_20150520.html

  15. Feb 28, 2016 at 8:57 am

    “In January, orders by trucking companies for Class 8 trucks – the big rigs that haul freight on North American highways – plunged 48% from a year ago, to 18,062 units.”

    Thank you; I needed some good news.

Comments are closed.