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 Twitter: @ATAEconBob
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 2015. 4. 2015 manufacturing output expectations lowered on both dollar strength and inventory correction. Still bullish on US factories longer-term including 2016. 5. Housing starts finally surpassed 1 million in 2014 and improves upon that in 2015. 6. Watching current inventory correction closely. 7. Forecast risk is to the upside.
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% 2013 2014 2015 2016 1.5% 2.4% 2.2% 3.1% Q1 2014 Q2 Q3 Q4 Q1 2015 Q2 Q3 Q4 Sources: BEA & ATA
Key Economic Indicators for Trucking Year-Over-Year Percent Change 20% 19.3% 18% 16% 14% 12% 10% 10.3% 2014 2015 2016 8% 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
Housing Starts Millions of Units; Seasonally Adjusted Annualized Rate 1.2 1.1 1.0 2013 2014 2015 2016.928 1.001 1.104 1.317 18.4% 7.8% 10.3% 19.3% 0.9 0.8 0.7 0.6 0.5 0.4 2009 2010 2011 2012 2013 2014 2015 Includes single-family and multi-family units Sources: ATA & Census Bureau
Factory Output Millions; Seasonally Adjusted Annualized Rate 108 106 104 102 100 98 96 94 92 90 88 86 84 82 80 2013 2014 2015 2016 1.1% 2.8% 2.1% 4.2% 2009 2010 2011 2012 2013 2014 2015 Sources: ATA & Federal Reserve
US Dollar vs Euro /$ 1.0 Stronger $ 0.9 0.8 0.7 Weaker $ 7/13/2014 9/13/2014 11/13/2014 1/13/2015 3/13/2015 5/13/2015 7/13/2015 Source: Bloomberg
Real Consumer Spending on Goods Only 8% 2013 2014 2015 2016 7% 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% Q1 2014 Q2 Q3 Q4 Q1 2015 Q2 Q3 Q4 Sources: BEA & ATA
6% 5% 4% Real Disposable Income (Year-over-Year Increase) 2013 2014 2015 2016-0.2% 2.5% 3.5% 3.0% 3% 2% 1% 0% -1% -2% Q1 2013 Q1 2014 Q1 2015 Sources: BEA & ATA
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% 2014 2015 2016-6% -8% -10% -8.8% Imported Goods Prices CPI Core CPI Sources: BLS & ATA s Economics Department
Inflation Need Wage Growth for General Inflation (Annual percent change in Wages & Salaries vs Consumer Prices) 15% 10% 1930-2014 5% 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
Total Business Inventory-to-Sales Ratio (Data adjusted for seasonal, holiday, and trading-day differences, but not price changes) 1.55 1.50 Through May 2015 1.45 1.40 1.35 1.30 1.25 1.20 1.15 2009 2010 2011 2012 2013 2014 2015 Source: Census Bureau
General Trucking Themes 1. Truck freight volumes were solid in the last three quarters of 2014. 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 2016. 3. 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.
Truck Freight Trends
For-Hire Truckload Loads Year-over-Year Percent Change 2012 2013 2014 2015 0.8% 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
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
18% For-Hire TL Loads Year-Over-Year Percent Change 13% 2014 2015 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
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
LTL Shipments Index: 2000=100; Seasonally Adjusted 2012 2013 2014 2015 2.6% 2.4% 7.2% 2.8% Source: ATA s Trucking Activity Report
Truck Capacity Trends: Fleets want to add more trucks, but they can t find enough drivers.
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% 2013 2014 2015 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
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. 1997-2014 Source: ACT Research
Today s Tractors Are More Fuel Efficient, Starting MPG 10 9 8 7 6 5 4 3 2 1 0 6.5 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. 6.2 6.3 1998 2004 2007 2010 2014 6.9 8.0 Sources: ACT Research & ATA Tractor Model Year
For-Hire TL Tractor Capacity Index Level (2008=100) 105 100 95 90 85 80 75 70 2008 2009 2010 2011 2012 2013 2014 2015 YTD Includes employee and leased on independent contractor tractors. Source: ATA s Trucking Activity Report
Truckload Industry Struggles with Independent Contractors Index: January 2014 = 100 Percent change (Jun 15 vs Jan 14) +3.2% -4.6% Source: ATA
Truckload Miles per Truck per Month Annual Average Includes all types of TL freight Source: ATA
Source: ATA s Trucking Activity Report LTL Tractor Capacity Index Level (1997=100)
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
Revenue Trends
TL Spot market rates increased 15% in 2014; -0.5% in YTD 2015 5% 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% 2012 2013 2014 2015 YTD TL Data is a mix of contract and spot freight. Excludes FSC. Source: ATA s Trucking Activity Report
Cost Trends
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
Diesel Fuel Price 2013 2014 2015 2016 $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 $1 2004 2010 2014 2015 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: EIA
Driver Trends
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% 2009 2010 2011 2012 2013 2014 Q1 2015 Source: ATA
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
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
Years Median Employee Driver Age 60 50 40 52 50 49 49 47 42 30 20 10 0 Private LTL All Carriers TL Drayage All US Workers
Truck Driver Age Demographics
Truck Driver Age Demographics
Gender Statistics Truck Drivers All US Workers 6% 47% 53% 94% Male Female Male Female Source: Bureau of Labor Statistics
Driver Shortage: Effects 1. Increases costs 2. Operational hardships 3. Difficult to add capacity 4. Freight delays
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
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
Annual Employee Driver Compensation 2013 Median Pay Including Incentives and Bonuses *Solo Drivers Only Source: ATA s Driver Compensation Study 2014
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%
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
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
Carriers Offer Many Benefits to Employee Drivers (Percent offering the benefit) All Data Includes Employee Drivers Only
Summary 1. Annual economic growth slightly lower than 2014, but expect a better second half of 2015 and solid 2016. 2. 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.
Thanks Twitter: @ATAEconBob