2015 Q4 Logistics Review

Posted - February 9, 2016

2015 Q4 Logistics Review

By: Tom Sanderson, CEO, Transplace

The fourth and final quarter of 2015 saw a number of activities across various economic sectors worth highlighting. In last quarter’s recap blog, I shared thoughts on capacity, retail sales and manufacturing. Below, I’ll share some of the key highlights from the last quarter, including important aspects of the housing and auto markets, fuel prices and recent transportation funding legislation. Let’s take a look at Q4.

Flatbed Capacity-Demand Balance Favors Shippers, Fuel Prices Fall

Morgan Stanley’s flatbed freight index indicated that flatbed capacity was more readily available in Q4 of 2015 than in any of the previous 6 years, including the recession of 2009. Flatbed capacity had modestly tightened through June, but eased substantially since then. And since the index never rose very far in 2015, it did not have a long way to fall to reach 2009 levels. The falloff seems to have stabilized over the last few months.

Diesel hit its lowest price since June 2009 on December 7th at $2.379 per gallon. And prices continue to fall, nearing the $2 per gallon mark. On January 12th, the Energy Information Administration (EIA) dropped its pricing forecast by 3 cents to a $2.29 per gallon average for 2016.

November Sees Housing Surge, But There is Still Ground to Cover

In November, housing starts totaled 1.173 million (seasonally adjusted annual rate – SAAR) up 10.5% from October. And starts were 16.5% above the November 2014 rate and were above all expectations.

However, there remains a lot of ground for the housing sector to recover from the recession and housing starts are still far below the average of just over 1.5 million per year over the last 40+ years, and even farther below the 2.2 million peak of the most recent housing boom. Since 1968, the U.S. population has grown from 200 million to over 300 million. Some economists believe that this slower population growth and household formation in the U.S. mean that housing starts will not recover to 1.5 million units for a long time.

A low housing starts figure not only impacts transportation demand for building products but also for appliances, furniture, and other related items, so continued improvement in the housing sector should lead to rising freight volumes.

Auto and Light Truck Sales Rising, Boosting Consumer Confidence

Annualized seasonally adjusted U.S. sales (SAAR) of domestic and foreign autos and light trucks fell slightly to 18.06 million in November, beating expectations (18.0 million), and remaining at or above a 17-million unit annual pace for seven consecutive months and above an 18-million unit pace for three straight months. Back-to-back-back months at that pace has never happened in the past, and imported and domestic light truck sales performed much more strongly than auto sales as low fuel prices continue to sway buyers.

The full-year sales total for 2014 was 16.5 million up 6% from 15.6 million in 2013 and right in line with the early decade average (16.7 million). And 2015 was the first year since 2001 with more than 17 million units sold, setting an all-time sales record. Auto purchases represent a large portion of the typical household budget, and improving auto sales is directly correlated to rising confidence among American consumers.

Congress Negotiates with Itself to the Detriment of Taxpayers

The new highway bill called the FAST Act, or “Fixing America’s Surface Transportation,” was signed into law by President Obama on December 4th. But the only FAST thing about this bill is the way it plays fast and loose with our tax dollars and the federal deficit.

The transfer from the General Fund (where we spend hundreds of millions of dollars per year more than we take in) to the Highway Trust Fund (where we spend tens of millions of dollars per year more than we take in) is not a great solution for the ongoing problem of highway funding. Here’s what I’ve gleaned from reading the “Joint Explanatory Statement of the Committee of the Conference”:

  • The Senate Amendment would transfer $34,401,000,000 to the Highway Account and $11,214,000,000 to the Mass Transit account from the General Fund to the Highway Trust Fund.
  • The House Amendment would transfer $25,976,000,000 to the Highway Account and $9 billion to the Mass Transit account” from the General Fund to the Highway Trust Fund.
  • The “Compromise” FAST Act transfers $51,900,000,000 to the Highway Account and $18,100,000,000 to the Mass Transit account from the General Fund to the Highway Trust Fund.

So, one side wants to spend $45.6 billion more than we have and the other side wants to spend $35 billion more than we have, and they compromise by spending $70 billion more than we have. It is almost as much as the two chambers proposed if added together.

Federal gas and diesel taxes have not been raised since 1993. The nation has just recently dropped below one trillion dollars in annual deficits. There is tremendous inefficiency in federal highway spending. Borrowing $70 billion dollars over the next five years to fund infrastructure improvements is clearly not the solution.

For more updates on current trends and industry forecasts, visit my blog or follow me on Twitter: @TomSandersonCEO.

Did Q4 meet your expectations? What trends are you watching in 2016?