The smartest minds on Wall Street use charting analytics to quickly identify and then track trends in multiple data sets. Why? Because it works. Even the most intelligent investor or skilled trader identifies patterns in numbers when they are charted far faster than when those numbers are simply displayed in columns and rows. Graphically depicting data becomes more important when you are trying to compare two or more data sets and understand the relationship between them over time. When viewing a chart of a couple of data sets that are related, you begin to understand the reason of the marketplace. If you can add a series of technical indicators to the graph, you begin to understand the rhyme and the reason of the marketplace.
SONAR allows you to quickly view graphical series of data, many of which weren’t previously available to professionals trading the marketplace. More importantly, it allows you to view those data series compared to other data series (some proprietary, others not) and then apply the type of sophisticated technical indicators to the data series that are normally reserved for Wall Street. Patterns in the data don’t just sit there quietly as numbers; they literally jump off the screen at you. What are a few of those ‘jumping off the screen’ at us right now?
Two of the indicators that are jumping off the screen right now are the DOE.USA and CIPI.USA Indices. Both are clearly signaling that the ongoing surge in diesel prices is driving loads off the road onto the rail in shorter and shorter lengths of haul.
Although in the longer term we still expect WTI oil to trade in the $45 to $65 a barrel range and diesel in the $2.50 to $3.25 range, it is currently slightly higher (WTI oil is over $70 and diesel is $3.385).
According to the Cass Information Systems Intermodal Rate Index the pricing for domestic intermodal moves surged another 10.1% YOY in the month of September. On a nominal basis, the index rose to 142.1, an all-time high for September and just shy of the all-time high of 143.2 established in March of this year. September marked the twenty-fourth consecutive month of increases, and brought the three-month moving average to 11.1%.
It is a normal industry event to watch both demand and pricing power for domestic intermodal increase as the price of diesel increases. Most understand that higher diesel pricing drives both incremental demand and incremental pricing opportunities for domestic intermodal. With the diesel national average price at $3.385 a gallon in the most recent week, which is 22% higher on a YOY basis, it is a positive contributing factor for both demand and pricing.
We have also observed intermodal ‘catch a tailwind’ from over-the-road truckload pricing. This high degree of correlation (between truckload and base intermodal pricing) happens because intermodal providers know they can use truckload pricing as an umbrella and know that by staying at a slight discount volume can still be taken away from truckload, even if the costs associated with intermodal have not increased an equivalent amount. With the recent acceleration in truckload rates (up 9.7% in September, 11.1% in August, 10.2% in July, 9.5% in June, and 9.0% in May – CTLI.USA), intermodal rates should have even more room to increase in the coming months.
In addition to higher diesel prices, for the first time in history we are seeing volume choosing domestic intermodal versus over-the-road, not because of high diesel prices, but because of available capacity. Truckload capacity is so tight that shippers are choosing intermodal to “just get the freight moved.” This is exaggerating the amount of pricing intermodal providers are able to obtain.
Donald Broughton – chief market strategist