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Trucker Stocks Plunge After First Post-COVID Job-Losses As Freight Recession Looms

Trucker Stocks Plunge After First Post-COVID Job-Losses As Freight Recession Looms

Update (1040ET): Confirming the expectations of a freight…

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Trucker Stocks Plunge After First Post-COVID Job-Losses As Freight Recession Looms

Update (1040ET): Confirming the expectations of a freight recession explained below, US Truckers saw the first month of job losses in March since the COVID lockdowns...

This helped spark a collapse in Trucker stocks, back to the lows of the year...

*  *  *

As FreightWaves' CEO Craig Fuller detailed earlier, a freight recession is imminent.

Last week, I published an article entitled “Just 3 years after 2019’s trucking bloodbath, another is on the way.”

For anyone who lived through the trucking debacle of 2019 – when carrier after carrier suddenly shut their doors – the thought of experiencing that again is truly frightening. After all, we lost some very large carriers during that period , including Celadon, Falcon and NEMF, just to name a few. In addition, we lost thousands of small and mid-sized trucking companies. In addition, major 3PLs conducted aggressive reductions in force.

A Celadon truck sits after the company’s shutdown

The article stoked controversy. Some disagreed with my call and voiced it directly to FreightWaves or on social media. 

First off, different opinions and disagreements are part of a healthy market. When I started FreightWaves in 2017, the goal was to create transparency in the freight market, much like you see in the financial markets. In order to accomplish transparency, there needs to be an open dialogue between those of us interested in the direction of the freight market. 

When FreightWaves was just beginning, I was told by an editor at a major publication (who has been covering supply chains for many decades) that trucking rates were not volatile and they barely moved. I’m still not sure why he believed that, but I suspect he thinks differently now. 

Trucking has always been volatile. It is one of the most fragmented markets on the planet, with few barriers to entry. Carriers come and go. Booms are followed by busts. The typical trucking cycle is three years and usually what kills it is oversupply – too many trucks chasing high-paying spot freight and high load volumes. 

The problem is that capacity expansion always continues well past the peak and can even continue for a time after the market has entered a recession. In the bloodbath of 2019, the peak of the market took place during the second quarter of 2018. However, it wasn’t until September 2019 that the number of new entrants into the trucking market peaked.  

At FreightWaves, our business is benchmarking, analyzing, monitoring and forecasting freight markets. And much like financial market information services providers, having the freshest insights into the market is incredibly important to our success. 

FreightWaves tends to call inflection points much earlier than other industry observers. It’s a big part of the value we provide our audience and clients.

On February 27, 2020, we warned that the freight market was about to see a massive disruption due to COVID, and that it wasn’t factored into historical data or market sentiment. This was two weeks before the “NBA and NHL moments,” when those sports leagues called off their seasons. At that point, most believed that the U.S. would avoid disruptions from COVID. Unfortunately, two weeks later, the worst health crisis in modern American history began. 

That’s the disadvantage of looking strictly at historical data and shows why having the most up-to-date data in the market is critical, particularly in a market as volatile as the trucking freight market. 

As I wrote back then: “The coronavirus is a black swan event not reflected in historical data. These unforeseen events make it clear why near-time data is crucial for freight operations.”

It turned out that FreightWaves’ analysis was correct and anyone relying on historical data or data without context was going to be wrong. 

Throughout the COVID disruption, FreightWaves continued to provide real-time data and to analyze the trucking market with the freshest perspective on what was happening. This real-time analysis provided insights that were unmatched and unlike any in the history of the freight industry – government agencies, financial institutions, multinational corporations, and transportation providers all relied on FreightWaves to keep them informed during a confusing, dynamic situation.

In the trough of the COVID shutdown, we called for a freight bull market and nailed it

On April 15, 2020, I wrote the blog post GOOD NEWS: THE FREIGHT MARKET IS ABOUT TO TURN UP.”  At the time, the global economy had just shut down, most states had implemented drastic measures to contain COVID and unemployment hit new records. It was a dark and scary time, but I was bullish that the freight market was about to accelerate.

As I wrote at the time: 

“So here is the good news. The contract trucking market seems to be bottoming out. The declines we saw in trucking tenders seem to be leveling off and there are signs of a bottom. This makes sense – most of the economy that shut down due to COVID-19 and shelter-in-place orders are largely offline right now.

Over the next few weeks, we can expect that the parts of the economy that impact freight demand will start to come back online. Life won’t return to normal, but the trucking freight markets largely will. The reason is that the parts of the economy that are unlikely to return are the ones involved in sectors that generate little freight demand – concerts, events, sports. In other words, the really fun things that involve large gatherings. Travel is also expected to be all but shut down. All of this will come back eventually, but probably not until there is a coronavirus vaccine. 

Restaurant dining will continue to suffer, but in regard to freight movement, demand is largely fungible between grocery and restaurants. In other words, people are still eating food, just from grocery or takeout versus dining at a restaurant. 

Manufacturers and retailers will start to come back on board. This will be good for freight demand. There is a significant backlog of orders in manufacturing sectors that have been shut over the past few weeks. Even with demand being curtailed, this will return. 

Two stressors are unemployment and consumer sentiment, but this is where the government has stepped up with unprecedented stimulus. The $2 trillion in fiscal stimulus coming from the White House and the estimated $4 trillion in stimulus coming from the Federal Reserve will cycle through our economy. And the U.S. isn’t the only country doing this. Countries all over the world are pumping massive amounts of money into the global economy. 

And since consumers are not able to spend their money on experiences and fewer services, they will have more money to spend on goods. And there is one thing that consumers, especially Americans, will do is to spend their money.” 

This is exactly what happened. Almost to a “T.” 

At the time, many questioned my analysis and forecast of the market. Quite a few believed the U.S. economy would experience a multi-year downturn that would rival the Great Recession – or worse. Some of those same voices are calling me out now.

But I have confidence in our analysis. I wish the answers were different. I would prefer to say the U.S. trucking market was robust and the expansion will continue throughout 2022. But I can’t. Since I wrote the piece about the bloodbath, FreightWaves SONAR’s tender data continues to reinforce the perspective of a declining freight market.  

Tender rejections are the best indicator into real-time supply/demand in the truckload sector. The data comes from actual electronic load requests – “tenders” in the truckload contract market. 

A high rejection rate means that trucking companies have more options to choose from. A low rejection rate means carriers have fewer options in freight to pick from. Since this measures actual load activity and not load board posts or searches, it tells us what the market is actually doing. 

And since it measures the willingness of carriers that are contracted to accept or to reject a load they have a contracted rate for, if the rejection rate declines, it suggests capacity is loosening. 

At the start of March, the rejection rate was 18.7% – today it sits at 13.90%. Even though it has only been a week since I wrote the “bloodbath” article, the rejection rate has fallen another 1.3%. The last week of March is normally one of the best weeks of the year for carriers, but this year it has been one of the worst.

Just wait for April… 

Tyler Durden Fri, 04/01/2022 - 10:40

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Economics

After a near 10% rally this week can the Netflix share price make a comeback?

The Netflix share price rallied by nearly 10% (9.6%) this week after co-CEO Ted Sarandos confirmed the film and television streaming market leader is to…

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The Netflix share price rallied by nearly 10% (9.6%) this week after co-CEO Ted Sarandos confirmed the film and television streaming market leader is to introduce a new ad-supported, cheaper subscription. The company also announced it is to lay off another 300 employees, around 4% of its global workforce, in addition to the 150 redundancies last month.

Netflix has been forced into a period of belt-tightening after announcing a 200,000 subscriber-strong net loss over the first quarter of 2022. The U.S. tech giant also ominously forecast expectations for the loss of a further 2 million subscribers over the current quarter that will conclude at the end of this month.

netflix inc

The company has faced increasing sector competition with Paramount+ its latest new rival, joining Amazon Prime, Disney+, HBO Max and a handful of other new streaming platforms jostling for market share. A more competitive environment has combined with a hangover from the subscriber boom Netflix benefitted from over the Covid-19 pandemic and spiralling cost of living crisis.

Despite the strong gains of the past week, Netflix’s share price is still down over 68% for 2022 and 64% in the last 12 months. Stock markets have generally suffered this year with investors switching into risk-off mode in the face of spiralling inflation, rising interest rates, fears of a recession and the geopolitical crisis triggered by Russia’s invasion of Ukraine.

Growth stocks like Netflix whose high valuations were heavily reliant on the value of future revenues have been hit hardest. No recognised member of Wall Street’s Big Tech cabal has escaped punishment this year with even the hugely profitable Apple, Microsoft, Alphabet and Amazon all seeing their valuations slide by between around 20% and 30%.

But all of those other tech companies have diversified revenue streams, bank profits which dwarf those of Netflix and are sitting on huge cash piles. The more narrowly focused Meta Platforms (Facebook, WhatsApp and Instagram) which still relies exclusively on ad revenue generated from online advertising on its social media platforms, has also been hit harder, losing half of its value this year.

But among Wall Street’s established, profitable Big Tech stocks, Netflix has suffered the steepest fall in its valuation. But it is still profitable, even if it has taken on significant debt investing in its original content catalogue. And it is still the international market leader by a distance in a growing content streaming market.

justwatch

Source: JustWatch

Even if the competition is hotting up, Netflix still offers subscribers by far the biggest and most diversified catalogue of film and television content available on the market. And the overall value of the video content streaming market is also expected to keep growing strongly for the next several years. Even if annual growth is forecast to drop into the high single figures in future years.

revenue growth

Source: Statista

In that context, there are numerous analysts to have been left with the feeling that while the Netflix share price may well have been over-inflated during the pandemic and due a correction, it has been over-sold. Which could make the stock attractive at its current price of $190.85, compared to the record high of $690.31 reached as recently as October last year.

What’s next for the Netflix share price?

As a company, Netflix is faced with a transition period over the next few years. For the past decade, it has been a high growth company with investors focused on subscriber numbers. The recent dip notwithstanding, it has done exceedingly well on that score, attracting around 220 million paying customers globally.

Netflix established its market-leading position by investing heavily in its content catalogue, first by buying up the rights to popular television shows and films and then pouring hundreds of millions into exclusive content. That investment was necessary to establish a market leading position against its historical rivals Amazon Prime, which benefits from the deeper pockets of its parent company, and Hulu in the USA.

Netflix’s investment in its own exclusive content catalogue also helped compensate for the loss of popular shows like The Office, The Simpsons and Friends. When deals for the rights to these shows and many hit films have ended over the past few years their owners have chosen not to resell them to Netflix. Mainly because they planned or had already launched rival streaming services like Disney+ (The Simpsons) and HBO Max (The Office and Friends).

Netflix will continue to show third party content it acquires the rights to. But with the bulk of the most popular legacy television and film shows now available exclusively on competitor platforms launched by or otherwise associated with rights holders, it will rely ever more heavily on its own exclusive content.

That means continued investment, the expected budget for this year is $17 billion, which will put a strain on profitability. But most analysts expect the company to continue to be a major player in the video streaming sector.

Its strategy to invest in localised content produced specifically for international markets has proven a good one. It has strengthened its offering on big international markets like Japan, South Korea, India and Brazil compared to rivals that exclusively offer English-language content produced with an American audience in mind.

The approach has also produced some of Netflix’s biggest hits across international audiences, like the South Korean dystopian thriller Squid Games and the film Parasite, another Korean production that won the 2020 Academy Award for best picture – the first ever ‘made for streaming’ movie to do so.

Netflix is also, like many of its streaming platform rivals, making a push into sport. It has just lost out to Disney-owned ESPN, the current rights holder, in a bid to acquire the F1 rights for the USA. But having made one big move for prestigious sports rights, even if it ultimately failed, it signals a shift in strategy for a company that hasn’t previously shown an interest in competing for sports audiences.

Over the next year or so, Netflix’s share price is likely to be most influenced by the success of its launch of the planned lower-cost ad-supported subscription. It’s a big call that reverses the trend of the last decade away from linear television programming supported by ad revenue in its pursuit of new growth.

It will take Netflix at least a year or two to roll out a new ad-supported platform globally and in the meanwhile, especially if its forecast of losing another 2 million subscribers this quarter turns out to be accurate, the share price could potentially face further pain. But there is also a suspicion that the stock has generally been oversold and will eventually reclaim some of the huge losses of the past several months.

How much of that loss of share price is reclaimed will most probably rely on take-up of the new ad-supported cheaper membership tier. There is huge potential there with the company estimating around 100 million viewers have been accessing the platform via shared passwords. That’s been clamped down on recently and will continue to be because Netflix is determined to monetise those 100 million viewers contributing nothing to its revenues.

If a big enough chunk of them opt for continued access at the cost of watching ads, the company’s revenue growth could quickly return to healthy levels again. And that could see some strong upside for the Netflix share price in the context of its currently deflated level.

The post After a near 10% rally this week can the Netflix share price make a comeback? first appeared on Trading and Investment News.

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Aura High Yield SME Fund: Letter to Investors 24 June 2022

The RBA delivered a speech this week indicating faster monetary policy tightening is to come in the near-term with the aim of curbing the rate of inflation….

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The RBA delivered a speech this week indicating faster monetary policy tightening is to come in the near-term with the aim of curbing the rate of inflation.

Inflation and Monetary Policy 1,2

This week, RBA Governor Philip Lowe spoke about the department’s monetary policy intervention to tackle inflation in the evolving economic environment. Over the last six months, similar factors have continued to put pressure on food and energy prices – namely the war in Ukraine, foods on the East coast, and Covid lockdowns in China. The ongoing lockdowns in China are causing disruptions in manufacturing and production and supply chains coupled with strong global demand that is unable to be met. These pressures have forced households and businesses to absorb the rising cost of living.

To demonstrate the rise, the RBA reporting this week on Business Conditions and Sentiments saw:

  • Almost a third of all businesses (31 per cent) have difficulty finding suitable staff;
  • Nearly half (46 per cent) of all businesses have experienced increased operating expenses; and
  • More than two in five businesses (41 per cent) face supply chain disruptions, which has remained steady since it peaked in January 2022 (47 per cent).

* The Survey of Business Conditions and Sentiments was not conducted between July 2021 to December 2021 (inclusive)

Inflation is being experienced globally, although Australia remains below that of most other advanced economies sitting at 5.1 per cent. The share of items in the CPI basket with annualised price increases of more than 3 per cent is at the highest level since 1990 as displayed in the graph below.

With additional information on leading indicators now on hand, the RBA has pushed their inflation forecast up from 6 to 7 per cent for the December quarter, due to persistently high petrol and energy prices. After this period, the RBA expects inflation will begin to decline.

We are beginning to see pandemic-related supply side issues resolve, with delivery times shortening slightly and businesses finding alternative solutions for global production and logistic networks. Whilst there is still a way to go in normalising the flow in the supply side and the possibility that further disruptions and setbacks could occur, the global production system is adapting accordingly, which should help alleviate some of the inflationary pressures.

The RBA’s goal is to ensure inflation returns to a 2-3 per cent target range over time, with the view that high inflation causes damage to the economy, reduces people’s purchasing power and devalues people’s savings.

Household Wealth 3

Growth of 1.2 per cent in household wealth, equivalent to $173 billion, was reported in the March quarter. The rise was a result of an increase in housing prices in the March quarter. Prices have started reversing since that read.

Demand for credit also boomed, with a record total demand for credit of $218.8 billion for the March quarter. The rise was driven by private non-financial corporations demanding $153.2 billion, while households and government borrowed $41.9 billion and $17.5 billion respectively. 

We will likely see a significant shift in household wealth and credit demand in next quarter’s report given the rising interest rate environment, depressed household valuations and elevated pricing pressures. 

Portfolio Management Commentary

A lag in leading economic indicators has shifted the RBA’s outlook, with an increase in the expected level of inflation to peak at 7 per cent and rate rises to come harder and faster in the near term. From a portfolio standpoint we are not seeing any degradation in our underlying portfolio and open dialogue with our lenders has us confident in their borrowing base. We are maintaining a close eye on the economic environment to ensure we maintain the performance of our Fund and ensure our lenders are in a position to maintain performance and strive to capitalise off the back of economic shifts.

1 RBA Inflation and Monetary Policy Speech – 21 June 2022

2 RBA Inflation and Monetary Policy Speech – 21 June 2022

3 Australian National Accounts: Finance and Wealth

You can learn more about the Aura High Yield SME Fund here.

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The Sussex researchers who used international collaboration and 3D printing to stem PPE shortages in Nigeria

Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment…

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Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment (PPE) shortages for a community in Nigeria during the Covid-19 pandemic – tells a recently published academic paper.

Credit: Please credit Royhaan Folarin, TReND

Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment (PPE) shortages for a community in Nigeria during the Covid-19 pandemic – tells a recently published academic paper.

In their paper in PLOS Biology, Dr Andre Maia Chagas from the University of Sussex, and Dr. Royhaan Folarin from the Olabisi Onabanjo University (Nigeria), explain how their collaboration led to the production of  over 400 pieces of PPE for the local hospital and surrounding community, including those providing essential and frontline services. This included face masks and face shields, at a time when a global shortage meant it was impossible for these to be sourced by traditional companies. 

In their collaboration, they leveraged existing open-source designs detailing how to manufacture approved PPE. This allowed Nigerian researchers to source, build and use a 3D printer and begin producing and distributing protective equipment for the local community to use. Plus, it was affordable.

One 3D printer operator and one assembler produced on average one face shield in 1 hour 30 minutes, costing 1,200 Naira (£2.38) and one mask in 3 hours 3 minutes costing 2,000 Naira (£3.97). In comparison, at the time of the project, commercially available face shields cost at least 5,000 Naira (£9.92) and reusable masks cost 10,000 Naira (£19.84). 

Dr Maia Chagas, Research Bioengineer at the University of Sussex, said: “Through knowledge sharing, collaboration and technology, we were able to help support a community through a global health crisis. 

“I’m really proud of the tangible difference we made at a critical time for this community. As PPE was in such high demand and stocks were low, prices for surgical masks, respirators and surgical gowns hiked, with issues arising around exports and international distribution. 

“We quickly realized that alternative means of producing and distributing PPE were required. Free and open-source hardware (FOSH) and 3D printing quickly became a viable option.

“We hope that our international collaboration during the pandemic will inspire other innovators to use technology and share knowledge to help address societal problems, which were typically reliant on funding or support from government or large research institutions. 

“With open source designs, knowledge sharing and 3D printing, there is a real opportunity for us to start addressing problems from the ground up, and empower local communities and researchers.”

Dr. Royhaan Folarin, a Neuroscientist and lecturer of anatomical sciences at Olabisi Onabanjo University in Nigeria, said: 

“During the pandemic, we saw the successful printing and donation of PPE in the Czech Republic by Prusa Research and it became a goal for me to use the training I had received in previous TReND in Africa workshops to help impact my immediate community in Nigeria.”

The international collaboration came about as a result of the TReND in Africa network, a charity hosted within Sussex which supports scientific capacity building across Africa. 

After initial use, testers provided feedback commending the innovativeness, usefulness and aesthetics of the PPE and, while the team’s 3D printer was not built for large-scale serial manufacturing, they identified the possibilities for several 3D printers to run in parallel, to reduce relative production time. During the pandemic, this was successfully demonstrated by the company Prusa Research, which produced and shipped 200,000 CE certified face shields. 


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