- Stocks in transportation, transportation and rail companies such as JB Hunt, Union Pacific and UPS are among the worst performers in the market in recent trades.
- Truck drivers in California are laid off due to lack of containers.
- The overall number of ocean bookings for US-bound cargo has declined.
- Movement of goods from warehouses to stores is slowing, and this week’s GDP report showed that investment in inventories fell in the first quarter as fewer businesses restocked.
Shelley Simpson, president of JB Hunt Transport Services, recently said the industry is in the midst of a “goods recession”.
Luke Sharrett | Bloomberg | Getty Images
A common argument made by management about logistics firms’ earnings this quarter when discussing poor performance – a slowdown in freight volume – is backed up by the key economic data underlying the outlook for the trucking and rail sectors.
An analysis of trade trends by CNBC Supply Chain Heat Map data providers has been signaling inbound freight weakness for several months. The decline negatively impacts profits for both trucking and rail, where revenue is generated by moving goods.
UPS CEO Carol Tome cited slowing U.S. retail sales as a factor in lower-than-expected volumes and continued weak demand in Asia. “Given the current macro conditions, we expect volume to remain under pressure,” she said.
Shelley Simpson, president of JB Hunt Transport Services, recently described the current situation in the industry as a “goods recession”.
Sea freight orders are a major indicator of rail and truck revenue as 90% of world trade is carried by water. With production orders down 30-40% since June last year, it should come as no surprise that ocean bookings have fallen. Fewer ocean orders means less cargo arriving in the US to be moved by train or truck.
This is one of three key supply chain charts that signal the next financial holes for transport and rail companies.
Speaking to Union Pacific last week, CEO Lance Fritz cited inflation, high inventory levels and weak consumer spending as short-term challenges. UNP picks up cargo from West Coast and Gulf ports. West Coast ports are losing trade with both East Coast and Gulf ports as a result of protracted labor negotiations, although union officials indicated last week that a “provisional agreement” had been reached but no details were given.
CSX beat profit forecasts as a result of increased freight and coal volumes. Norfolk Southern also reported the strength of goods and coal. Both NSC and CSX pick up cargo from East Coast and Gulf Coast ports. But even with a mixed earnings picture, as a group the stock is down about 5% over the past week.
The biggest downside in Thursday’s first-quarter GDP report was a decline in private investment in inventories, even though consumer spending remained relatively high as firms discount more and restock less in anticipation of looming consumer weakness. Along with the economic slowdown, a decrease in the amount of goods transported by freight transport can also be observed in large-format retail.
In more than 60 markets served by ITS Logistics in North America, the average utilization of total freight capacity is 75%.
There is more work to be done for some transport companies as the supply chain issues of the last few years have eased further. According to Motive data, there was a 6% increase in truck utilization in March compared to February. “With the elimination of delays in docking and unloading goods at ports, coupled with greater shipping capacity and a more restrictive cost environment, companies are being forced to use resources more efficiently,” said Hamish Woodrow, Principal Data Analyst at Motive.
He added that it is important to note that the upward trend is partly due to the disparity between larger fleets of companies with a larger overall cargo volume and smaller fleets that have been more negatively affected by the volatility of fuel prices and demand over the last 8-12 months.
At the same time, the transport industry travels farther to work. According to Motive, the average 7-day mileage for transport companies has increased.
The decline in ocean bookings and the long-term shift away from California ports is compounding the problems of the transportation industry.
Paul Brashier, vice president of marine and intermodal transport at ITS Logistics, said that one of the biggest challenges facing the industry today is the location of truck workers. Despite a long-term shortage of drivers for the transportation industry, the West Coast workforce is now shrinking.
“We are rebalancing our driver workforce away from California due to a decline in freight volumes,” said Brashier. “At the same time, we are actively hiring in Texas and the Midwest to respond to the growing need to move containers arriving in Houston, the Southeast and the Midwest. Trucking is needed both to pick up containers from ocean terminals and from railroad ramps. we have also seen an increase in the number of containers traveling inland to Chicago, Dallas and Atlanta.”
Data Providers CNBC Supply Chain Heat Map is the artificial intelligence and predictive analytics company Everstream Analytics; global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; logistics provider OL USA; FreightWaves supply chain analytics platform; Blume Global supply chain platform; third party logistics provider Orient Star Group; marine analytics global provider MarineTraffic; the marine visibility data company Project44; sea freight data from MDS Transmodal UK; sea and air freight rate benchmarking and market analysis platform Xenet; leading research and analysis provider Sea-Intelligence ApS; Worldwide crane logistics; Global DHL Shipping; freight logistics provider Seko Logistics; Planet, a provider of global, daily satellite imagery and geospatial solutions, ITS Logistics provides port and rail transportation services at 22 coastal ports and 30 rail ramps across North America, as well as the Motive, Automated Operations Platform for vehicle and equipment tracking.