Why investors should track the Transportation Services Index

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What’s Transportation Services Index?

The Transportation Services Index (or TSI) measures changes in the passenger and freight movements in the U.S. domestic market. It only includes domestic “for hire” transportation operated by a company that provides transportation services for a fee. It doesn’t include non-commercial passenger transportation, taxi, and intercity bus services.

The TSI is released monthly by the Bureau of Transportation Statistics (or BTS). It includes three indexes:

  1. Freight Index
  2. Passenger Index
  3. Combined Index

It considers all the modes of transport that are used on hire—including air, rail, road, and water.

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Freight TSI

The Freight Index includes five modes of transport:

  1. trucking
  2. air
  3. water
  4. rail
  5. pipeline

While trucking is the most widely used mode of transport, the fastest growing mode of transport is air. However, air is the smallest mode in terms of volume.

The Freight TSI increased by 0.2% quarter-over-quarter in 2Q14. It declined by the same percentage in 1Q14. Adverse weather conditions impacted the sector in 1Q14. However, in June 2014 the index decreased to 118.7 from 120.3 in May 2014.

It increased 1.2% in July. It increased 0.6% in August to 120.9. August’s level is the highest that the index reached. However, it should be noted that the increase in August was driven more by trucking, water, and pipeline—not by air and rail.

Passenger TSI

The Passenger Index includes three modes of transport:

  1. air
  2. rail
  3. transit

Aviation is Passenger TSI’s largest component.

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The Passenger TSI increased by 0.4% quarter-over quarter in 2Q14. It increased by 0.9% in 1Q14. In June 2014, the index was 119.6. It was same as in May 2014. However, it was an increase of 1.7% compared to June 2013. In July the index increased slightly to 119.8. It remained at the same level in August.

 Why is it important?

The research looked at the relationship between the TSI and economic indicators. The Freight TSI acted as a leading economic indicator. Comparing the Freight TSI’s turning points with the economic growth cycles, the Freight Index measure leads by an average of four to five months.

The Passenger TSI is also an important index to track. It’s supposed to act as a coincident indicator. As a result, the movements of these indexes indicate future trends in the economy and the transportation industry.

In the U.S. airline sector, the top companies—including Delta Air Lines (DAL), United Continental (UAL), American Airlines (AAL), Southwest Airlines (LUV), and JetBlue Airways (or JBLU)—provide passenger and freight transportation services. Investors can gain exposure to these stocks through transportation exchange-traded funds (or ETFs) like the iShares Transportation Average ETF (or IYT) and the SPDR S&P Transportation ETF (XTN).

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