Less-than-truckload volumes appeared to remain elevated during December, according to Amit Mehrotra, managing director and head of transportation and shipping research at Deutsche Bank (NYSE: DB).
The December data indicates the sequential monthly trends were in line with “typical seasonality,” however off of a higher base. The firm’s Sunday report to clients showed activity at Old Dominion Freight Line (NASDAQ: ODFL) terminals was down 10.1% from November to December, in line with the carrier’s historical 9.8% sequential decline in shipments.
“Our geofencing dataset shows typical seasonality in December, but this is off very solid levels in recent months. And we also believe pricing dynamics remain very strong,” Mehrotra said in the note.
Mehrotra is estimating a 9% sequential decline in shipments at Saia (NASDAQ: SAIA) and XPO Logistics (NYSE: XPO), with YRC Worldwide (NASDAQ: YRCW) seeing a 14% decline during the month.
Deutsche Bank’s data innovation group bases its estimates on a proprietary algorithm, which analyzes mobile phone geolocation data within certain boundaries of more than 1,300 LTL terminals across the country.
Mehrotra cautions that the data isn’t perfect because factors like weight per shipment and yields can’t be determined, but the dataset has proved to be a reliable indicator of LTL activity in the past. He noted that the firm’s geofencing capabilities picked up on the surge in activity at Saia’s terminals in the middle of 2020 and a “big recovery” in shipments at XPO late in the third quarter.
He said the December data bodes well for XPO again. “We also have observed further progress in XPO activity levels on a year-over-year basis, which is encouraging for the outlook of the company’s closely watched LTL business.”
Midquarter updates were positive
In early December, several LTL carriers reported a continuation of positive freight trends for the first two months of the fourth quarter.
Saia reported a 7.3% year-over-year increase in November tonnage, following a 5.7% increase during October. Old Dominion’s 5.2% year-over-year November tonnage increase followed a 2.2% tick higher in October. Combined with improvements in revenue per hundredweight, Old Dominion’s revenue increased 6.3% in November after improving 2.6% in October.
YRC saw modest increases in volumes, with tonnage climbing roughly 2% for each of the first two months of the fourth quarter. ArcBest (NASDAQ: ARCB) reported that LTL tonnage in its asset-based segment increased in the double-digit range in November, similar to the increase it reported for October.
Deutsche Bank’s geofencing data does not include ArcBest’s terminals.
Industrial activity advancing
The Manufacturing Purchasing Managers’ Index (PMI) jumped to 60.7% in December, up 3.2 percentage points from November and the seventh straight month of expansion. A reading above 50% indicates expansion in the U.S. manufacturing sector.
Manufacturing activity can account for up to 85% of LTL tonnage for some carriers. LTL demand has a high correlation to PMI data, with volumes lagging the index by roughly three months.
The new orders subindex climbed 2.8 percentage points to 67.9%, and the production component moved 4 points higher to 64.8%. Additionally, customers’ inventories remained “too low” at 37.9%, which is considered a positive sign for future production.
“The bottom line is the LTL industry [and the railroads] sit at the very top of our preference list as it relates to our 2021 outlook … which reflects our strong positive stance on the outlook for U.S. industrial activity in 2021,” Mehrotra added. He went on to say XPO and Saia are the stocks with the most upside, and that Old Dominion is “well positioned.”