Logistics Operators See a Shipping-Market Rebound Taking Shape Demand is growing and freight rates are rising in a sign retailers are restocking inventories again
Containerized imports recorded the highest month-over-month growth for January in seven years, according to Descartes Datamyne, a data-analysis group. Transportation prices rose during the month for the first time since June 2022, according to a widely used measure of U.S. logistics activity, and retailers appear to be boosting inventories after a long period of retrenchment.
The upturn marks a shift for truckers, warehouse operators and logistics services companies that have struggled since mid-2022 as an inventory glut and slowing consumer spending on goods sapped freight demand and tipped some companies into bankruptcy. (…)
The pickup in logistics activity isn’t the sharp rebound that many companies had been hoping for since last year, but some executives say they hope it signals that a floor has been reached.
“I think we are bouncing along the bottom and hopefully we’re about to bounce off the bottom,” Paul Bunn, president of Chattanooga, Tenn.-based truckload carrier Covenant Logistics, said on a Jan. 24 earnings conference call. “It’s going to be probably a U-shaped recovery.”
ArcBest, parent of trucking heavyweight ABF Freight, says its core shipments that move under contract jumped 8% year-over-year in January after profitability improved in the fourth quarter.
“We definitely saw great improvement from the third quarter to the fourth quarter that was ahead of what we would have expected seasonally for those quarters,” said Matt Beasley, finance chief at trucking and logistics operator ArcBest. (…)
Intermodal rail volumes, in which goods move by truck and rail in operations heavily used by retailers, rose 5.5% in the first five weeks of the year, according to the Association of American Railroads, including a 16.5% gain in the week ending Feb. 3.
Retailers spent the past 18 months working through excess inventory after bringing in too much merchandise in 2022 when consumers shifted spending toward services. Merchants have now brought inventory back in line with sales and are focusing on refilling shelves rather than burning off stockpiles. (…)
(December retail sales were up 5.6% YoY, accelerating sharply since the spring on strong payrolls growth and declining prices. Growth probably slowed in January (Thursday) along with payrolls and because of bad weather.
The very strong sales in November and December cleansed retailers’ inventories, setting the stage for rising new orders, production and imports.
S&P Global’s January Manufacturing PMI confirmed the upturn:
Driving the uptick in the headline figure was a renewed expansion in new orders at manufacturing firms at the start of the year. The pace of growth was moderate overall and the quickest since May 2022.
Most goods consumed in the USA are imported. Imports of consumer goods dropped 9.6% in 2023 but they were flat in the last 2 months of the year.
Commercial-Property Loans Coming Due in US Jump to $929 Billion Maturities have soared as more debt was extended, MBA says
Nearly 20% of outstanding debt on US commercial and multifamily real estate — $929 billion — will mature this year, requiring refinancing or property sales.
The volume of loans coming due swelled 40% from an earlier estimate by the Mortgage Bankers Association of $659 billion, a surge attributed to loan extensions and other delays rather than new transactions. (…)
About $4.7 trillion of debt from all sources is backed by US commercial real estate, ratcheting up concern among regulators and investors as building values slide. (…)
An estimated $85.8 billion of debt on commercial property was considered distressed at the end of 2023, MSCI Real Assets reported, citing an additional $234.6 billion of potential distress.
Commercial-property prices are down 21% from a peak reached in early 2022, before the Federal Reserve launched its aggressive rate hikes to combat inflation, January data from Green Street show. Office prices have had the biggest decline, falling 35%, according to the real estate analytics firm.
Banks have $441 billion of commercial-property debt coming due this year, the mortgage bankers group reported. About $234 billion of maturing debt is securitized in CMBS, collateralized loan obligations and asset-backed securites, while $168 billion in loans are coming due for nonbank lenders, such as debt funds.
About 25% of office loans are coming due in 2024, the MBA said. Values have plummeted and vacancies have soared with the growth of remote and hybrid work.
Cash-Flush Buyers Dip Into Distressed Commercial Real Estate With many owners unable to extend their loans, investors are starting to pounce on these properties.
(…) Investors with cash on hand have begun to snap up these properties or provide rescue capital to struggling owners in exchange for preferred returns. Recent activity includes deals by a venture of investment giant Ares Management and New York office landlord RXR. The venture is buying discounted interests in 3 million square feet of office space and has made offers on more than $500 million of senior debt, according to a person familiar with the matter. (…)
Overall, global real-estate funds operated by private-equity firms were sitting on $544 billion in cash as of the second quarter of last year—a record level and up from $457 billion at the end of 2022, according to data firm Preqin. The largest increase was in so-called opportunistic funds, which often search for distressed opportunities. (…)
In the past, regional banks often provided loan extensions to developers of completed projects even if they were behind schedule in leasing up. But these days, regulators are warning these lenders that they need to reduce real-estate exposure, and regional banks are pulling back. (…)
Commercial-property pain is still far from the levels of the 2008-9 financial crisis. In the second quarter of 2010, the industry was swamped with a record $194.8 billion in distress, $109 billion more than at the end of 2023, according to MSCI.
Moreover, there is more capital available from funds and other sources to buy distressed assets or provide new loans or preferred equity. Many owners are also reaching into their own pockets to salvage their deals. (…)
Still, if higher interest rates persist, many owners struggling to hang on might eventually have to capitulate.
“Just because you can secure some equity or you can get an extension, doesn’t change the underlying dynamics,” said Hendry. “At some point, the math is just the math.”
KKR:
(…) The failures of Silicon Valley Bank, Signature Bank, and First Republic in the earlier part of 2023 led to many U.S. regional banks becoming more strategic with their balance sheets. They’re more thoughtful about the products they’re in, both in terms of their own liquidity positions and whether those assets are core or non-core. They’re also thinking about potential additional regulation.
All of this creates challenges for capital availability and liquidity, which has encouraged many banks to shed assets. This is not 2008 or 2009, though. Banks are not selling assets in a fire sale. It’s a slower process, and I think the more elevated level of activity we’re seeing will persist for the next handful of years.
In addition to selling assets, we’ve also seen regional banks take a step back both from providing capital and buying assets from specialty finance platforms throughout the United States. That has allowed us to step in and fill the void as either the capital provider or the buyer for those assets.
They are looking to sell assets, core or non-core, that are generally performing, with the sale price closer to par so it’s not capital-destructive. The bank may decide it no longer wants to be in a non-core business, or it may need to reduce existing exposure to a core business line in order to keep lending in that area. We have not seen U.S. banks selling portfolios of distressed or challenged assets, though that could happen down the road. (…)
BofA Survey Shows Investors Are All In on US Tech Stock Rally Investor allocation to tech stocks highest since August 2020
Exposure to US equities more broadly has also risen, while easing macro risks prompted investors to trim cash levels by 55 basis points from January.
Previous such declines in cash levels were followed by stock market gains of about 4% in the following three months, strategist Michael Hartnett wrote in a note. (…)
About 65% of investors forecast a soft economic landing, while the probability of a hard landing faded to 11%. About 41% of participants said they expect large-cap growth stocks to drive equity markets, while 18% indicated gains would be fueled by small-cap growth stocks.
- Most crowded trades: long Magnificent Seven (61%), short China equities (25%), long Japan equities (4%), long cash (2%) and long investment-grade corporate bonds (1%)
Super Bowl most watched US broadcast since Apollo moon landing
[Bespoke] looked at market returns from the Super Bowl through year-end based on several different scoring scenarios, and let’s just say that no matter who wins, let’s hope it’s a high-scoring blowout. When the winner wins by 21 or more, the total score is 60 or more, the winner scores at least 35, or the loser scores more than 28, average returns under each scenario for the remainder of the year are above 10%. Conversely, when the winner scores 21 or less or the loser scores seven or fewer points, the average returns are either negative or barely positive. See, there’s a reason the NFL likes high-scoring games. You should too!
Chiefs (NFC) 25, 49ers (AFC) 22.
VALUATION WATCH!
From the U.K. Independent (via Almost Daily Grant):
A 285-year-old lemon, found in an antique cabinet, was auctioned for £1,416 ($1,784) in the U.K. According to Brettells Auctions in Shropshire, the lemon was unexpectedly found inside a 19th-century cabinet which was being photographed for sale.
The cabinet was brought in by a family claiming it belonged to a deceased uncle. The lemon was inscribed with these words: “Given By Mr. P Lu Franchini Nov. 4, 1739 to Miss E. Baxter.” The auction house decided to sell the 285-year-old lemon. “We thought we’d have a bit of fun and put it (lemon) in the auction with an estimate of £40-£60,” said auctioneer David Brettell.