We read the f0llowing judgements in the Stifel Financial Services bulletin: (www.stifel.com)


As expected, the 2Q14 was strong for many of the companies which have reported 2Q14 results so far. Supply and demand was unquestionably tight throughout the quarter. But, supply was constrained by:


  •  A congested national rail network which, in the three months after the bulk of the challenging 1Q14 snow and ice melted, still wasn’t close to recovering to network fluidity levels routinely experienced in recent years.
  • A truck driver shortage that was/remains the worst ever experienced. The shortage has spread well beyond the irregular route truckload sector and now constrains capacity in the drayage, dedicated fleet, private fleet, less-than-truckload, and regional distribution market segments.
  • The new Hours-of-Service rules which were implemented by the Federal Motor Carrier Safety Administration on July 1, 2013. Most carriers reported losing 2% to 4% of their system productivity as a result of the new rules.
  • A highway system that does not have sufficient maintenance funding, that is in a state of disrepair, and that is riddled with far too many debilitating bottlenecks or choke points. In 2013 the American Society of Civil Engineers gave our nation’s roads a collective grade of “D” and our nation’s bridges a collective grade of “C+”.
  • Shippers, as a class, that have yet to collaborate sufficiently with carriers to eliminate much of the waste embedded in the historical operating model. For example, freight is too often delivered by appointment in order to maximize the efficiency of the receiver (without regard for the impact the schedule may have on productivity of the nation’s freight transportation network).

… while demand was strengthened by:

  • 1Q14 freight that couldn’t be delivered in the 1Q14 (due to extraordinarily challenging winter weather conditions) and was, instead, delivered in the 2Q14.
  • Imported 3Q14 freight was pulled forward into the 2Q14 as shippers anticipated the possibility of a work stoppage at west coast ports.
  • What our friend Scott Arves (CEO of Transport Corp. of America) termed the “Law of Big Stuff ”. Late Spring and early Summer merchandise is not miniaturizable and tends to move during the second quarter. Think in terms of gas grills, fertilizer, lawn mowers, lawn furniture, garden hoses, rototillers, pool chemicals, charcoal, beer, Gatorade, etc. In essence, the 2Q has emerged as the freight peak, especially as holiday gifts continue to get more and more compact (think in terms of iPads, iPods, iPhones, etc.) and as more and more gift givers pursue the “safe route” and give gift cards—which are typically not redeemed until the 1Q of the following year.
  • Inventory and stockpile replenishment which couldn’t be accomplished in the 1Q due to the weather. Coal stockpiles at many utilities still haven’t been fully replenished. And the late December surge in e-commerce orders, which nearly brought UPS to its knees, depleted many fulfillment centers’ inventories. Those, in turn, needed to be restocked in the 1Q and in the 2Q.