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SCDigest Expert Insight: Stifel Transportation Weekly

About the Author

John Larkin is Managing Director and Head of Transportation Capital Markets Research for Stifel Financial Corp.

One of the most well-known and respected analysts following the transportation sector, Larkin is a frequent speaker at logistics focused conferences and events.

He writes the weekly Transportation Weekly research note for Stifel every Monday morning, made available from SCDigest through special arrangement.

In 2001, he joined Legg Mason, which was later sold to Stifel, Nicolaus in 2005, where and led the firm's entry into the transportation markets. Prior to joining Legg Mason, Larkin was Chairman and CEO of RailWorks Corp., a publicly traded transportation services company.

By John Larkin

May 26, 2015

Stifel Transportation Weekly for May 26, 2015

Larkin Says:

2015 truckload demand has beaten the average demand level only 10 times out of the 19 weeks so far this year - most of which were earlier in the year.
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New Expert Insight Column on SCDigest: We have partnered with Stifel Financial Corp. to publish its weekly recap of the week in transportation, written by well-known analyst John Larkin. Check the SCDigest home page each Monday morning for the latest edition.

Takeaways from This Week's Fundamental Research

Janet Yellen's speech on Friday, May 22, 2015 at the Greater Providence Chamber of Commerce outlined her perception of soft GDP figures being transitory, a neutral stance on inflation, conservative views on the labor market, and optimism around rates being increased this year if the economy continues to improve.

As part of her commentary on GDP, she had commented on weak investment in the energy sector, growth in the housing sector, and softness in industrial related commodities. The labor market, as measured by unemployment, continues to improve, though she noted that productivity growth has been disappointing. Since 2007 productivity had grown only 1.25% per annum versus 2% - 3% in the decade prior.


She speculated that low productivity growth may be due to firms having slashed capex during recession and that cash rich companies remaining risk averse could be delaying potential growth. She caveated that this could be reversed moving forward to compensate for the period of tepid productivity growth we are currently in.


Lastly, she had reiterated she had confidence in a gradual rate increase beginning this year. This timeline corroborates with our expectation that an increase this summer would be early.


Previous Columns by John Larkin

Stifel Transportation Weekly for July 20, 2015

Stifel Transportation Weekly for July 15, 2015

Stifel Transportation Weekly for June 29, 2015

Stifel Transportation Weekly for June 1, 2015

Stifel Transportation Weekly for May 26, 2015


Key Insights from the Analysis of Industry Data Feeds

Trucking & Logistics:

In week 19, spot demand was mixed across indicators. The ITS Market Demand Index (MDI) measured 15.42, up 6.6% from W18. Load-to-truck ratios on DAT were mostly down. Dry van fell 14.3% sequentially this week and flatbed fell 3.9%. Reefer increased by only 1.7% this week.

Looking closely at DAT spot rates, refrigerated rates increased by only 0.5% sequentially this week at $2.17 per mile. Flatbed and dry van stayed flat this week at $2.18 per mile and $1.85 per mile, respectively. ITS Market Rates generally increased (except for specialized rates, which remained flat), for a total sequential increase of 1.8% from last week. Notable increases included a 4.1% sequential increase in van rates and a 2.6% sequential increase in reefer rates.

Demand (MDI) finally moved above the 5-year moving average after tracking slightly below for eight consecutive weeks. 2015 demand has beaten the average demand level only 10 times out of the 19 weeks so far this year - most of which were earlier in the year. Demand seems to be continuing to normalize to similar levels seen in 2013 - still nowhere near the inflated comps seen in 2014. To compare, W19 of 2015 is up 20.4% y/y from the comparable week in 2013 and up 4.5% from the comparable week's 5-year average; however, it is down by 27.5% y/y from 2014




Total unit volume (i.e., commodity carloads and intermodal units) in W19 remained flat this week after decreases across the board last week in W18. The only significant increases in total unit volume this week were CP and NSC at 3.3% and 1.3%, respectively. The largest decreases were BNSF and CSX at 1.0% and 0.8%, respectively. Notable commodity trends this week include iron & steel, which increased 18.8% in volume this week after falling 17.2% last week. Grain also increased its volume by 9.7% sequentially this week after showing prior weakness in recent weeks.

Total commodity carloads (down 1.0% sequentially this week) showed weakness across most rails with the sequential laggards of the group being BNSF (down 3.5%), CN (down 1.5%), and UNP (down 1.5%). The only rails which showed significant increases in total commodity carloads this week were CP (up 2.5%) and NSC (up 1.4%). In contrast, intermodal carloads increased sequentially this week. The only rails to show decreases in intermodal carload volumes were CSX and KSU, which were down 0.8% and down 0.4%, respectively. Among the others, CP was the leader at a 4.7% increase in intermodal volume this week.

Across Class I's as a whole - intermodal containers, motor vehicles, and waste/nonferrous scrap were up the most this week y/y. The only Class I rail that did not show an increase in intermodal containers this week y/y was KSU. The intermodal story has been continuing throughout most of 2015, but a relatively newer trend has been the softness in coal volumes. Most Class I rails have suffered from the weak coal volumes, which have persisted for the last several weeks due to regulations and a soft U.S. dollar. This week y/y, all major railroad unit combinations showed declines in coal. Grain, which had fallen in recent weeks, showed some improvement but still remains weak.

Class I performance metrics showed mixed results this week and remain relatively unimpressive, which has been the situation for the past few weeks. On a weekly sequential basis, velocity remained relatively flat for Class I rails. Notably, BNSF decreased its velocity by about 3.7%, while CN and NSC were able to increase their velocities by 1.9% and 1.5%, respectively. Terminal dwell unfavorably increased by 0.2% this week, which was mostly due to a large sequential increase in KSU (up 7.0%) and a lesser but still significant sequential increase from BNSF (up 2.0%). KSU's large increase in dwell comes after a 5.0% decrease the week prior in W18. Sequentially this week, the rails have kept their cars on-line flat. In y/y terms, the rails have an incremental 600 cars on-line relative to last year. Finally, overall asset efficiency is generally up from last quarter; however, on a total y/y basis more cars on-line have been required to move a like-for-like number of goods.

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