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1. What Freight Flows are telling us about the
Economy and What should you be doing?
Donald BroughtonDonald Broughton
Chief Market Strategist, Managing Director, Senior Equity AnalystChief Market Strategist, Managing Director, Senior Equity Analyst
June 25, 2014June 25, 2014
2.
3. Why Slow Growth, No Growth?Why Slow Growth, No Growth?
Constant Message of “Be Afraid”
Increased Regulation
Demographics
Disintermediation
Unless you are in:
E-Commerce
Fracking
Intermodal
4. Executive Summary
Demand is accelerating, in all modes (Truck, Rail,
Airfreight).
Capacity is getting tighter, in all modes (broadly in
Truck, specific areas of Rail, Airfreight).
Pricing power is surging, in all modes (broadly in
Truck, specific areas of Rail, Airfreight).
Cap-Ex budgets are being actively revised up, in all
modes.
5. Fracking!Fracking!
Natural Gas - Price & SupplyNatural Gas - Price & Supply
How plentiful is the supply?
Why is the price so low?
Can it stay low for a long time?
14. Natural Gas Flaring
Around 34%, of the natural gas produced, is
estimated to be flared in North Dakota annually
Terrible natural gas pricing and the rapid growth of
the Bakken are key catalysts
Rapid build-out required in Natural Gas Midstream
assets
Natural gas in North Dakota is liquids rich
15. Natural Gas Midstream
Infrastructure
Oneok is spending $1.8 Billion on three gas plants and
gathering systems
Each plant will have 100 Mmcf/d capacity
Flaring is estimated to drop to between 15-20% of
total production after the three plants are built, from
34% currently. National average is 7%
16. Real World ApplicationsReal World Applications
Who is testing & what are they
finding?
Major LTL’s
Large over the road TL fleets
Who is adopting & in what formats?
Local P&D fleets, Utilities, etc.
19. Even The Strategery of DomesticEven The Strategery of Domestic
Airfreight has Begun to ReboundAirfreight has Begun to Rebound
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
RevenueTon Miles
(000s)
U.S. Domestic TotalAir Cargo Ton Miles
(1989 - Present)
Source: A4A
20. Hope for Change Here…?Hope for Change Here…?
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Revenue Ton Miles
(000s)
International Total Air Cargo Ton Miles
(1989 - Present)
Source: A4A
35. Tonnage Poised to Continue
Recovery?
90
95
100
105
110
115
120
125
130
135
140
Monthly Truck Tonnage Index (2000 basis 100)
Seasonally Adjusted Data
Non-Seasonally Adjusted Data
Source: American Trucking Association and AvondalePartners LLC
Avondale's
Projection
36. In Tonnage We Trust
Domestic Truck Tonnage growing at 8%, but loads
were flat until mid 2013
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
ATANon-SeasonallyAdjusted Truck Volumes
3MMA YoY
Tonnage
Total Loads
Dry Van Loads
Source: American Trucking Association and Avondale Partners LLC
37. Trucking Capacity
• Oldest fleet in history (avg age >6 yrs)
• No additions to current fleets
• Vulture acquisitions
• Trades lead to smaller fleets
• Regulations shrink capacity further (CSA/EOBR’s/HOS)
• Of remaining fleets, many not able to meet modern
supply chain needs
• Failure rates starting to go up again
• Transcore Spot Index and Cass TL Pricing Index both
establishing all time highs
38. -3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Miles Per Tractor During EOBR
Implementation
Source: Company filings and Avondale Partners estimates
Based on population of trucking companies
which have already gone through the EOBR
adoption process
Q1 is quarter in which we estimate at least
2/3 of fleet was outfitted with EOBRs
43. Pricing vs. Demand: 1993-Present
80
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
60
70
80
90
100
110
120
130
TruckloadperMilePricingIndex
ATASeasonallyAdjustedTruckTonnageIndex
Truckload Pricing vs. Truckload Demand
TruckloadDemandOnly One Factorin Pricing
ATA SA Truck Tonnage Revenue/mile
Pricing has stayed positive in periods
of declining demand as long as
capacity was also declining.
44. Pricing vs. Demand: 2005-Present
120
125
130
135
140
145
150
155
100
105
110
115
120
125
130
135
TruckloadperMilePricingIndex
ATASeasonallyAdjustedTruckTonnageIndex
Truckload Pricing vs. Truckload Demand
TruckloadDemandOnly One Factorin Pricing
ATA SA Truck Tonnage Revenue/mile
Pricing had generally
held or gone up in soft
demand...
45. Pricing vs. Capacity Reduction: 1998-Present
80
90
100
110
120
130
140
150
160
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
TruckloadperMilePricingIndex
TrucksRemoved
Truckload Pricing vs. Number of Trucks Removed
Truck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile
Increases in the rate of
capacity exiting the
market have been
followed by strength in
pricing - even when
demand was weak.
Sources: ATA and Avondale Partners
46. Pricing vs. Capacity Reduction: 1998-2002
Relationship Evident
90
92
94
96
98
100
102
104
106
108
110
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
TruckloadperMilePricingIndex
TrucksRemoved
Truckload Pricing vs. Numberof Trucks Removed
Truck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile
Sources: ATA and Avondale Partners
47. Pricing vs. Capacity Reduction: 2006 - Present
Relationship Evident
125
130
135
140
145
150
155
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
TruckloadperMilePricingIndex
TrucksRemoved
Truckload Pricing vs. Number of Trucks Removed
Truck Company Failures Typically Support Pricing When Demand is Weak
Trucks Removed
Revenue/mile
48. Spot Index vs. Capacity Reduction: 1998-Present
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
YoYChangeinSpotIndex
TrucksRemoved
Truckload SpotIndexvs. Number of Trucks Removed
Company Failures Typically Support Spot Market When Demand is Weak
Trucks Removed
YoY Change in Spot Index
49. Spot Index vs. Contract Pricing: 1999-Present
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-75%
-55%
-35%
-15%
5%
25%
45%
65%
Truckload Spot Index vs.Contract Pricing
Spot Market Imbalances Tend to Lead Contract Pricing Directionally
YoY Change in SpotIndex (left)
YoY Change in ContractPrice (right)
50. “Predictions” for 2014 - 2016
Cheaters still cheat, guard your CSA score
EOBR’s will have a big impact on capacity and an even
bigger impact on equipment visibility
Driver market gets even tougher
TL pricing power of 4 to 6 %
Margins for both the equipment provider and the
broker will continue to be under pressure
Consolidation in transportation poised to dramatically
increase
Hard, durable assets increasingly valuable
Fracking and natural gas woefully under-estimated
51. What Freight Flows are telling us about the
Economy and What should you be doing?
Donald BroughtonDonald Broughton
Chief Market Strategist, Managing Director, Senior Equity AnalystChief Market Strategist, Managing Director, Senior Equity Analyst
June 25, 2014June 25, 2014
Editor's Notes
Source file: N:ResearchTransportsfreightvsgdp.xls
Last update: 3/10/2014