Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The 132-year-old Dow Jones Transportation Average (DJTA) begins the week just 300 points below its all-time closing high of $9,421 set 11 days ago, even though there isn't much for traders and investors to hang their hats on except the idea that transports are, to coin financial lingo, "inflecting."
The run has indeed been impressive. From an intraday low on Election Day of $8,158, the 20-stock index rocketed nearly 1,300 points in one month, though the index has given up nearly 300 points through Friday's close. The optimists point to the formation of a pre-election cyclical bottom that was poised to turn regardless of who won. That trend, they maintain, is being juiced by investors' belief that President-elect Trump's proposed mix of corporate tax cuts, a trillion dollars in infrastructure spending, and a streamlining of a burdensome regulatory processes would goose GDP growth and, by extension, shipping demand.
Those with a more reserved outlook acknowledge that there have been some signs of life in a sector that--with exceptions like parcel--has been in recession for about 15 months. Yet transport is still bumping along the bottom with weak pricing trends, less-than-robust demand, and users still in control, at least as far as contract rates are concerned, they contend. The DJTA's move, they argue, is divorced from reality, and the potential for the current rally being a predictor for a stronger macroeconomic climate six months out has already been priced into current equity values. In addition, the value of the U.S. dollar has commenced another in a series of surges that is likely to further suppress demand for U.S. exports, an element that has contributed to the persistent demand malaise since the fall of 2015.
Another factor may be the Federal Reserve's decision Wednesday to raise the federal funds rate that financial institutions charge each other for overnight loans by 25 basis points, with the prospect of several more hikes to come next year and into 2018. Most observers, however, said current rate levels are so low that even a short series of hikes is unlikely, in and of itself, to derail a recovery.
Too far, too fast?
"The market continues to price into transportation stocks ... a higher-than-expected probability of a rosier view," John G. Larkin, lead transport analyst for Stifel, an investment firm, wrote in a research note Thursday. Larkin said the market has baked in a fanciful scenario where, quickly and almost simultaneously, the U.S. corporate tax rate will drop to 20 percent from 35 percent, a large infrastructure bill will sail through Congress, and energy self-sufficiency will be achieved. "We think it's unlikely that all are implemented in short order," he said.
Rising interest rates could further cloud the valuation picture for stocks of the public truckload companies, which have already enjoyed a nice run-up in the past month, Larkin wrote.
Benjamin J. Hartford, transport analyst for investment firm Robert W. Baird & Co., said that although the market may be turning up slightly, it is still in the process of troughing. Yet companies gathering at a Baird industrial conference shortly after the election were optimistic about the outlook under a Trump presidency, Hartford said. He estimated that prospects for a cyclical upturn in shipping have accounted for more than half of the surge in the Dow transports, with the balance coming from the fallout from Trump's victory, and the relief of finally having a winner after the most bruising campaign in decades.
Evidence of a still-struggling truckload sector came out of Swift Transportation Co.'s mid-fourth-quarter review on Dec. 9, when the Phoenix-based carrier, the industry leader in terms of sales, reported that core contract rates had declined slightly quarter to date, and with no discernable improvement in the first half of 2017. In addition, insurance premiums remain high as insurers adjust to the higher cost of legal awards, and the seller's market for used trucks showed a decline. Swift reported. During the second quarter, the carrier reduced the number of trucks in its core truckload fleet in a move to re-align resources with softer demand.
Swift executives forecast a healthier pricing environment in the second half of 2017, in part due to the impact of the federal government's mandate that all trucks built after the year 2000 be equipped with Electronic Logging Devices, or ELDs. Full compliance with the requirement is forecast to reduce fleet productivity by 5 to 8 percent in the immediate term as smaller carriers and owner-operators decide the rules are too expensive and onerous, and exit the market.
Green shoots, anyone?
There is a fair amount of bullishness to go around. An early December poll of 99 transportation investors released last week by investment firm Wolfe Research LLC found that more than three-quarters of the respondents expect transport stocks to outperform the broader market in 2017. The optimism comes on the heels of the transport index already outshining the Standard & Poor's 500 index through early December. The respondents cited the benefits of proposed tax reform and massive infrastructure spending, and made the railroads their top choice among the transport modes.
In addition, bullishness among small businesses in November soared to levels seen only three times since 2007, according to a monthly index compiled by the National Federation of Independent Businesses (NFIB). The index is based on a survey of small business owners nationwide about their expectations for the future and their plans for hiring, ordering, and borrowing. "Some of the most dramatic results revolve around job creation and improving business conditions," said Bill Vernon, NFIB's Massachusetts state director, in a statement. "They show that small business owners are thinking about long-term growth for the first time in a very long time."
Bradley S. Jacobs, founder, chairman, and CEO of Greenwich, Conn.-based transport and logistics provider XPO Logistics Inc., said the run-up in transport stocks was not a knee-jerk reaction to Trump's election, but a reflection of the high expectations that the new administration has set for itself. "Rightly or wrongly, the market believes that lower taxes and a pro-business administration will stimulate the economy next year," Jacobs said in an email. "A higher GDP would mean more freight. This would translate into greater profits for transportation companies."
Jacobs added that transportation stocks have benefitted from the tailwind of trillions of dollars in worldwide institutional liquidity seeking better returns than what can be achieved with assets such as bonds and real estate.
For the mavens who follow the non-contract, or "spot" market, the seeds of recovery were planted some time ago. According to consultancy and trucking load board provider DAT Solutions LLC, the spot market bottomed in the first two months of the year, showed surprising resiliency during a traditionally weak summer period, and then gained steam into the late fall. During the week that ended Dec. 3, the dry van load-to-truck ratio, which measures the number of available loads posted on the DAT boards versus the number of trucks, soared to its highest levels since June 2014, while the ratio for the refrigerated segment hit its highest level since March 2015, according to company data.
Mark Montague, industry pricing analyst at DAT, said the activity on DAT's top 100 lanes was much bigger than normally experienced during a post-Thanksgiving Day period. While the gains could be chalked up to surging seasonal demand for e-commerce, other factors not affected by the holiday season are at work, Montague said. Businesses are starting to loosen their purse strings, and the construction activity so key to the trucking industry's fortunes is picking up, he said. "There is emerging confidence that a real turnaround is under way," Montague said.
That isn't a surprise to Jonathan Starks, COO of consultancy FTR. "I wrote back at the end of October that the trucking market was turning," Starks said in an e-mail. "The spot market data was clearly showing better results for both load availability and pricing." Because spot-rate trends generally lead contract rates by a number of months, Starks said, it will take some time before spot market improvements filter down to contract pricing, which account for the bulk of truckload transactions.
"The publicly traded (truckload) carriers will still probably show relatively poor results in the fourth quarter, but I expect their commentary to be slightly more optimistic," Starks said.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.