Construction, housing starts and oil boom are all boosting flatbed market
A slowly improving economy is boosting many sectors of the trucking industry, including one that rarely receives national headlines. And with the summer months quickly approaching and bringing with them, many hope, more home building and construction jobs, the segment’s prospects appear bright.
It is that time of year for flatbed haulers.
According to a DAT Transportation Solutions blog post by Pat Pitz, flatbed demand was rising quickly as May kicked off.
“While the average load-to-truck ratio in April was 3.5 for vans and 6.6 for reefers, the flatbed load-to-truck ratio was 43.7 loads per truck,” he writes in the May 2 posting. “That’s the highest monthly load-to-truck ratio we've seen in years.”
At that point, the national average flatbed rate, excluding fuel surcharge, was up 17 cents year over year, he notes, with flatbed demand up 102% year over year. “Demand is usually highest in late spring/early summer so the ratio could still move higher this year,” Pitz wrote.
That trend seems to be continuing, as last week’s DAT Trendlines report notes that flatbed spot rates for April were up 2% over March and the flatbed load-to-truck ratio climbed 20% during that time.
Why are flatbed operations the place to be right now? There are number of factors.
“Several key indicators point to strengthening trends in the economy,” says economist Chip Rowe. “Following a period of stronger demand and surging spot prices, an improving outlook for construction, steel and heavy equipment suggests a further boost for the flatbed truck market in 2017.”
Rowe reports that even though there was a decline in the past two months, the National Association of Home Builders monthly confidence gauge rose 2 points to 70 for May. That is the highest it has been since the Great Recession and 2 points higher than expectations. The group continues to forecast a lack existing home inventory, leading to expectations of continued new construction.
“Building permits in April were at a seasonally adjusted annual rate of 1,229,000,” Rowe says. “While this is 2.5% below the revised March rate of 1,260,000, it is 5.7% above the April 2016 rate of 1,163,000. Housing starts in April were at a seasonally adjusted annual rate of 1,172,000. While this is 2.6% below the revised March estimate of 1,203,000, it is 0.7% above the April 2016 rate of 1,164,000.”
Heavy equipment sales, farming and oil are other factors currently driving the flatbed market.
“John Deere forecasts sales to improve about 4% in 2017 from a year ago, significantly higher than the prior forecast which called for a 1% decline,” Rowe notes. “Farming has a healthier outlook. The United States Dept. of Agriculture is forecasting net farm cash income, a solid measure of farm business strength, to be up 1.8% in 2017, following huge declines in 2015 and 2016.”
Net farm cash income is expected to improve by $1.6B over 2016, to $93.6B.
“With higher farm incomes, tractor and farm equipment orders are expected to increase,” he adds. “In addition, Caterpillar reported revenue improved for the first time in 10 quarters and increased its sales outlook to $38B to $41B (from $36B to $39B, +5.3% using the midpoint).”
Caterpillar, Rowe notes, reported improving sales in all of its core industries: construction, resources, and energy & transportation. For 2017, CAT is forecasting construction sales to improve 0% to 5%, while resource industry sales are expected to increase 10% to 15% over 2016, Rowe says.
The number of operating oil rigs in the U.S continues to climb, reaching 720 last week as 8 more rigs came online. It is the 18th week in a row that rigs were added to the total. The number of rigs is the “most since April 2015 and more than double the same week a year ago when there were only 318 active oil rigs,” Rowe says. “U.S. crude output was expected to rise to an average of 9.3M barrels per day (bpd) in 2017 and a record high 10.0M bpd in 2018 from 8.9M bpd in 2016, according to federal energy data.”
The idea of Congress following through on President Donald Trump’s $1 trillion infrastructure plan is also boosting hopes.
“The proposed $1T infrastructure spending bill (over the next decade), as well as recent trade actions which focus on building and buying American made products has improved the outlook for steel manufacturing and domestic demand,” Rowe notes. “In fact, Nucor’s [the nation’s largest steel manufacturer] CEO recently commented that 2017 could significantly exceed 2016 for the company.”
Other factors Rowe mentions are still strong auto sales, despite from softening, and growing confidence from consumers and businesses.
“Increased consumer and business confidence has the economy moving after several years of minimal growth,” he says. “The stock market has spiked to record highs and unemployment levels have declined. Economic activity in the manufacturing sector expanded once again in April (the eighth consecutive month) with a PMI of 54.8 (a reading above 50 indicates manufacturing sector growth). Of the 18 industries that report to the PMI, 16 reported growth in April. In addition, durable goods shipments and orders grew in March.”