August 11, Bob Costello Senior Vice President & Chief Economist American Trucking Associations

Transcription

1 Economic & Industry Update for U.S. Bank Are You Prepared For An Industry Acceleration? August 11, 2015 Bob Costello Senior Vice President & Chief Economist American Trucking Associations

2 General Economic Themes 1. Economy and trucking was soft early this year, but the fundamentals are still good. I m still expecting a moderate acceleration in both later this year and next year. 2. Growth in disposable income will support consumer spending, by far the largest component of GDP. 3. Stronger dollar keeps inflation low, but limits factory output for rest of manufacturing output expectations lowered on both dollar strength and inventory correction. Still bullish on US factories longer-term including Housing starts finally surpassed 1 million in 2014 and improves upon that in Watching current inventory correction closely. 7. Forecast risk is to the upside.

3 Quarterly Real GDP & Forecasts 6% 5% 4% 4.6% 4.3% 3% 2% 2.1% 2.3% 2.8% 2.9% 1% 0.6% 0% -1% -0.9% -2% -3% -4% % 2.4% 2.2% 3.1% Q Q2 Q3 Q4 Q Q2 Q3 Q4 Sources: BEA & ATA

4 Key Economic Indicators for Trucking Year-Over-Year Percent Change 20% 19.3% 18% 16% 14% 12% 10% 10.3% % 7.8% 6% 4% 2% 3.8% 2.1% 4.2% 3.8% 3.9% 3.3% 0% Housing Starts Factory Output Real Personal Spending, Goods Only Source: ATA s Economics Department

5 Housing Starts Millions of Units; Seasonally Adjusted Annualized Rate % 7.8% 10.3% 19.3% Includes single-family and multi-family units Sources: ATA & Census Bureau

6 Factory Output Millions; Seasonally Adjusted Annualized Rate % 2.8% 2.1% 4.2% Sources: ATA & Federal Reserve

7 US Dollar vs Euro /$ 1.0 Stronger $ Weaker $ 7/13/2014 9/13/ /13/2014 1/13/2015 3/13/2015 5/13/2015 7/13/2015 Source: Bloomberg

8 Real Consumer Spending on Goods Only 8% % 6.7% 3.1% 3.3% 3.8% 3.9% 6% 5% 4% 4.1% 4.1% 4.8% 4.3% 3% 3.1% 2% 1% 1.1% 1.1% 0% Q Q2 Q3 Q4 Q Q2 Q3 Q4 Sources: BEA & ATA

9 6% 5% 4% Real Disposable Income (Year-over-Year Increase) % 2.5% 3.5% 3.0% 3% 2% 1% 0% -1% -2% Q Q Q Sources: BEA & ATA

10 Key Inflation Indicators Year-Over-Year Percent Change 4% 2% 1.6% 1.8% 1.7% 1.8% 1.9% 0% -2% -4% -0.4% -2.2% 0.2% % -8% -10% -8.8% Imported Goods Prices CPI Core CPI Sources: BLS & ATA s Economics Department

11 Inflation Need Wage Growth for General Inflation (Annual percent change in Wages & Salaries vs Consumer Prices) 15% 10% % 0% -5% -10% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% Wages & Salaries Sources: Bureau of Economic Analysis & Department of Labor

12 Total Business Inventory-to-Sales Ratio (Data adjusted for seasonal, holiday, and trading-day differences, but not price changes) Through May Source: Census Bureau

13 General Trucking Themes 1. Truck freight volumes were solid in the last three quarters of But like the broader economy, freight was soft in Q1 & Q2; once inventory correction is over, expect volumes to pick up nicely. 2. Truckload industry is adding a little capacity in recent months, but remains well below all-time highs. Fleets will continue replacing tractors in 2015 this year should be the peak in truck sales with a slight decline in Revenue per mile continues to grow. 4. Driver shortage is as bad as ever. 5. Fleets continue to see rising costs x fuel. Fleets using fuel savings to pay drivers more and replace trucks. 6. Many small fleets were thrown 2 life lines in 2014: Drop in fuel prices and surge in spot market rates, which means they can pay drivers more and replace tractors.

14 Truck Freight Trends

15 For-Hire Truckload Loads Year-over-Year Percent Change % 1.5% 2.2% 2.3% Shipper Warning: Year-over-year comps start to become difficult, but it doesn t mean freight is weak. TL Data is a mix of contract and spot freight. Source: ATA s Trucking Activity Report

16 For-Hire Truckload Loads Index: 2000=100; Seasonally Adjusted TL Data is a mix of contract and spot freight. Source: ATA s Trucking Activity Report

17 18% For-Hire TL Loads Year-Over-Year Percent Change 13% YTD 14.2% 8% 5.3% 3% 2.4% 1.5% 3.7% 2.1% 0.3% -2% -7% -1.4% -3.7% -5.0% Dry Van Reefer Flatbed Tank Truck TL Intermodal Source: ATA s Trucking Activity Report

18 Spot Loads Market January 2013 = 100 Spot Loads Index ATA s For-Hire TL Loads Index ATA s TL Data is a mix of contract and spot freight. Sources: DAT.com & ATA s Trucking Activity Report

19 LTL Shipments Index: 2000=100; Seasonally Adjusted % 2.4% 7.2% 2.8% Source: ATA s Trucking Activity Report

20 Truck Capacity Trends: Fleets want to add more trucks, but they can t find enough drivers.

21 30% 25% 20% 15% For-Hire Capacity Changes & Class 8 Tractor Sales LTL Trucks TL Tractor Capacity US Class 8 Tractor Sales 18.4% 23.5% 10% 5% 0% -5% -1.7% 0.1% 4.0% -3.1% 7.0% 0.1% -10% -7.8% YTD Tractor capacity includes employee and independent contractor tractors 2015 outlook for tractor sales remains strong; Lots of replacement activity Source: ATA s Trucking Activity Report and ACT Research

22 Years U.S. Class 8 Trucks: Average Age Some fleets are/were losing good drivers because their equipment is too old. The average truck age for the publicly traded TL carriers was just over 2 years in 2014 compared with 6.2 years overall Source: ACT Research

23 Today s Tractors Are More Fuel Efficient, Starting MPG But At A Cost Over the last 10 years, MPG has improved ~29%, but new sleeper prices are up ~38%. Nearly 70% of the tractors on the road today are getting 6 MPG or less. Only 18% are getting better than 7 MPG Sources: ACT Research & ATA Tractor Model Year

24 For-Hire TL Tractor Capacity Index Level (2008=100) YTD Includes employee and leased on independent contractor tractors. Source: ATA s Trucking Activity Report

25 Truckload Industry Struggles with Independent Contractors Index: January 2014 = 100 Percent change (Jun 15 vs Jan 14) +3.2% -4.6% Source: ATA

26 Truckload Miles per Truck per Month Annual Average Includes all types of TL freight Source: ATA

27 Source: ATA s Trucking Activity Report LTL Tractor Capacity Index Level (1997=100)

28 Capacity: Other Thoughts 1. Don t expect a big boost across the board from the 34-hour restart victory 2. Don t expect drivers from the oil fields to flock to OTR trucking

29 Revenue Trends

30 TL Spot market rates increased 15% in 2014; -0.5% in YTD % Truckload Revenue/Mile LTL Revenue/Ton Year-Over-Year Percent Change TL Revenue Per Mile LTL Revenue Per Ton 4% 3% 2.8% 2.9% 3.2% 3.1% 2% 1.9% 1.2% 1% 0.5% 0.6% 0% YTD TL Data is a mix of contract and spot freight. Excludes FSC. Source: ATA s Trucking Activity Report

31 Cost Trends

32 Operational per Mile Costs of Trucking: 2013 Everything Else 18% Fuel Percentage Excludes Fuel Surcharges Equipment 10% Fuel 38% Driver Wages & Benefits 34% Source: ATRI Analysis of the Operational Cost of Trucking

33 Diesel Fuel Price $5 $4 Diesel $3.92 $3.83 $2.66 $3.03 Crude (WTI) $97.98 $93.17 $55.51 $62.04 $3 $2.35: Rest of the year avg to avg $2.66 for 2015 $2 $ $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA

34 Driver Trends

35 Truck Driver Turnover Rates 125% 100% TL LTL 98% 98% 95% 83% 84% 75% 50% 50% 52% 25% 8% 9% 8% 8% 11% 12% 9% 0% Q Source: ATA

36 DRIVER SHORTAGE At current trends, the shortage could balloon to 240,000 We are in big trouble if it gets there and don t expect it to. Data update scheduled to be published later this month. 35,000 Source: ATA

37 Driver Shortage: Causes 1. Demographics Age Women 2. Lifestyle - For many, job of last resort 3. More alternatives today 4. Some people just don t want the responsibility 5. Regulations Many Causes, So No One Solution

38 Years Median Employee Driver Age Private LTL All Carriers TL Drayage All US Workers

39 Truck Driver Age Demographics

40 Truck Driver Age Demographics

41 Gender Statistics Truck Drivers All US Workers 6% 47% 53% 94% Male Female Male Female Source: Bureau of Labor Statistics

42 Driver Shortage: Effects 1. Increases costs 2. Operational hardships 3. Difficult to add capacity 4. Freight delays

43 Driver Shortage: Solutions/Market Reactions 1. Pay is increasing 1. Base pay 2. Many fleets are changing pay models where possible 3. Sign-on bonuses 4. Benefits 2. Everyone needs to treat drivers better 1. Don t hold up drivers at docks 2. Shippers: delivery windows are better than appointments 3. Shippers need to work with their customers

44 Driver Shortage: Solutions/Market Reactions 3. Lower interstate driving age/graduated CDL? Maybe, but years away 1. Intrastate 2. Insurance? 4. Immigration? Unlikely - Mexican carriers No solution 5. Congestion/Infrastructure Yes, it adds to the problem - Drivers are sick of sitting in traffic 6. Productivity? 1. LTL Double 33s, maybe 2. TL weight or length unlikely

45 Annual Employee Driver Compensation 2013 Median Pay Including Incentives and Bonuses *Solo Drivers Only Source: ATA s Driver Compensation Study 2014

46 Carriers Utilize Multiple Base Pay Packages 76% of companies pay drivers two or more ways 1% 20% 13% 24% One Type of Base Pay Two Types of Base Pay Three Types of Base Pay Four Types of Base Pay Five Types of Base Pay 43%

47 Truckload: Sign-on & Referral Bonuses Percent of Fleets Offering Signon Bonus No 52% Yes 48% Percent of Fleets Offering Referral Bonus No 10% Yes 90% $2,500 $2,000 $1,500 $1,000 $500 $0 $2,500 $2,000 $1,500 $1,000 $500 $0 Amount of Sign-on Bonus $2,306 $1,500 Mean Median Amount of Referral Bonus $1,113 $1,000 Mean Median Source: ATA s Driver Compensation Study 2014

48 60% Percentage of Carriers Offering Sign-on Bonuses TL: 48% and rising quickly 50% 40% 30% 48% The fact that a third of private fleets and LTLs are offering sign-on bonuses is alarming. We ve never seen these types of numbers. 33% 33% 20% 10% 0% TL LTL Private Source: ATA s Driver Compensation Study 2014

49 Carriers Offer Many Benefits to Employee Drivers (Percent offering the benefit) All Data Includes Employee Drivers Only

50 Summary 1. Annual economic growth slightly lower than 2014, but expect a better second half of 2015 and solid Truck volumes will remain positive in 2015, although YOY comps get more difficult. 3. Capacity to remain constrained with pricing proxies increasing as a result. 4. Costs, especially around drivers, are rising quickly. 5. The driver shortage is as bad as ever. Recent pay increases are helping, but not solving the problem. Pay to increase robustly again this year. 6. The drop in diesel fuel helped fleets order new trucks and pay drivers more. 7. Carriers will continue refreshing the fleet in 2015 (peak) and 2016.

51 Thanks