Economically-sensitive traffic (i.e. coal and grain) has reached new 2009 highs in recent weeks, says William Green, Morgan Stanley Research. At CSX, nearly every freight category improved upon year-to-date trends, said the analyst. Auto volumes declined 33% in the week ended August 7, 2009, vs. a 47% decline for the year to date. AT Norfolk Southern, auto volumes were down just 5.7% for the same period vs. a 45% YTD decline. With auto production ramping up, Morgan Stanley analysts expected to see further improvement in traffic as the month progressed.
Morgan Stanley's economists forecast 3.5% GDP growth in the third quarter on the back of greater auto sales and production. “While a recovery implies upside for all freight, rails are particularly levered to an industrial recovery,” said a Morgan Stanley report. When coupled with signs of recovery across the economy, Morgan Stanley economists see continued growth in the fourth quarter (+2.0%) and 2010 (+2.6%).
The Morgan Stanley Truckload Freight Index was little changed on a seasonally-adjusted basis, but showed some signs of marginal improvement in early August. According to the proprietary index, dry-van readings typically improve in mid-to-late August ahead of back-to-school shopping. The stabilization in the index suggests carriers may be starting to see improvement one to two weeks earlier than the past few years, reported Morgan Stanley.
We estimate average dry-van truckload rates were down mid-to-high single digits in June,” said Morgan Stanley analyst William Greene. “We suspect July was relatively similar on a year-over-year basis. That said, truckload carriers have now lapped the benefits of 2008 stimulus checks with the toughest comparisons on year-over-year basis (June and July) behind us.” Comparisons won't become easy until carriers lap October's collapse in demand, Greene continued, but August and September represent more normal comparisons for pricing and utilization. “As a result, we expect third quarter declines in revenue per loaded mile (excluding fuel surcharges) to slightly exceed second-quarter 2009 weakness, but declines should moderate throughout the quarter.Most truckload carriers tend to have a greater skew towards retail, grocery, and consumer products, but autos are not immaterial to the truckload industry, Greene noted. Demand should see an uptick from increased auto production, but dry-van carriers generally lack exposure to the raw materials and heavy industrials that feed the auto supply chain.