In mid-May we rolled out high frequency monitoring of alternative data to help frame the debate on whether or not the freight cycle had peaked, noting “the surface freight market is closer to peak than not” and port fluidity had recovered faster than expected.

We still see supply chain strains in our updated framework but the key West Coast ports are holding onto recent fluidity gain despite record volumes. The equity market priced in peak concerns more broadly since our note, with TL -13% and LTL -17% on average, now the question is which group is next? We think the TL discount to LTL could come in further and TL can work on a relative basis, but we stop short of upgrading a group short of trough that still cannot scale into record rates. TL multiples will also drop further as the market won't pay for big gains from selling equipment at high rates, HTLD is the only TL trading below its prior trough multiple and we upgrade to OW on valuation. Mid-cycle plays JBHT and CHRW are often viewed as the next to de-rate but we expect both should be able to push through margin pressure this quarter with ~30% of their contracts resetting at higher rates. However, valuation pressure on mid-cycles will likely ramp up as the market starts to ask: “what are we playing for?” In single stock ideas for 2Q21, we like: UNP for operating and volume momentum, UPS on a 2Q beat and strong 2H21 outlook, XPO providing more details on RemainCo, and CHRW avoiding a margin squeeze and finally growing TL volume.

We’d avoid WERN facing challenges to scale (even dedicated) and CSX facing public shipper complaints for the first time since adopting PSR. Rail service remains poor but that hasn’t really been a problem for JBHT since 3Q20 and contract rate tailwinds will more than offset lingering fluidity challenges. See page 6 for our view of sentiment and positioning, FAQs, and key debates this quarter. Please contact the team or your salesperson for the details to join our preview call at 10am ET on Zoom.

 Looking for peaks and watching the Chase card consumer receipts. Our latest update of the high frequency data monitoring the West Coast ports suggests supply chains are still stretched but the ports and terminals are holding on to fluidity gains since hitting peak congestion in early March. The largest trade gateway in North America is approaching another peak season running at elevated volumes but appears to be in decent shape. We plan on monitoring the ports in our weekly Fast Track along with consumer spending patterns using Chase card data. The shift to services from goods accelerated heading into the summer and discretionary spending growth on a two year stack has caught up with non-discretionary again, which suggests slowing truckload demand will combine with tough comps in 2H21.

 Adding high frequency used truck monitoring to supplement industry updates.

We continue to rely on Richie Brothers data as the primary gauge for used truck prices, as expected the index remained strong with Class 8 build rates hampered by chip shortages. In addition to these monthly updates we are monitoring several used truck marketplaces and postings for real-time datapoints. Trends in average prices, inventories and rate per mile are all indicating relatively consistent gains through June after declining from a recent peak in May. With concerns of a cycle peak percolating through the market, we believe these used truck datapoints could help identify any inflection points that could be a potential negative catalyst for Ryder.