August 2012 Cass Freight Index shows slippage in shipment volume and rates

Economic slippage is still prevalent in the freight economy based on data in the August edition of the Cass Freight Index Report from Cass Information Systems.

The Cass Freight Index accurately measures trends in North American shipping activity based on $20 billion in paid freight expenses of roughly 350 of America’s largest shippers, according to Cass officials.

As LM has reported, many trucking industry executives and analysts consider the Cass Freight Index to be the most accurate barometer of freight volumes and market conditions, with many analysts noting that the Cass Freight Index sometimes leads the American Trucking Associations (ATA) tonnage index at turning points, which lends to the value of the Cass Freight Index.

August freight shipments and expenditures were mostly down sequentially and annually.

Shipments at 1.130 were down 1.1 percent compared to July and down 1.1 percent compared to August 2011. This represents the 27th consecutive month shipments were above the 1.0 mark since May 2010, when shipments moved above the 1.0 mark for the first time since November 2008.

Expenditures at 2.368 were down 1.1 percent compared to July and up 3.8 percent compared to August 2011.

Cass officials said in the report that the decline in shipments marks the third time in 2012 that shipments have been down annually, adding that freight volumes were up 9.9 percent during the first half of the year, but has subsequently slipped to 8 percent through August, due to contraction in July and August.

The firm added that there are various reasons for shipment volumes slowing down, including how inventories are building beyond the levels needed to support expected sales, coupled with retailers and manufacturers pulling back on restocking. Other factors contributing to depressed shipment levels, as outlined in the report, include global orders being in steady decline, the Chinese Manufacturing Index falling in eight of the last ten months and export orders in August dropping at their steepest level since March 2009, and three straight months of declines in manufacturing output based on Institute for Supply Management data, which is also seeing a drop-off in new order activity.

On the expenditures front, Cass said that to a large degree rates were largely unchanged in August although they are up 4.4 percent year-to-date through August. The report noted that tight capacity in some parts of the country, due to a lack of equipment and a driver shortage, and driver pay is increasing faster than rates are, suggesting that these increased costs are yet to be passed through. The firm expects rates to “hold firm at current levels” or possibly increase as capacity continues to tighten and carriers face high labor and fuel costs.

“Building inventories, declining new orders and backlogs, and falling consumer and business confidence in short-term economic growth are all pointing to a flat to declining freight market in the coming months,” the report stated. “Uncertainty regarding taxes, as well as other issues that hinge on this year’s election, has bred a sense of uneasiness and unwillingness to move forward.”

Charles W. “Chuck” Clowdis, Jr., Managing Director-Transportation Advisory Services, at IHS Global Insight told LM there are multiple reasons for the travails facing the freight transportation sector and consumer-based economy.

“Our opinion is that a combination of reduced ‘back-to-school’ spending coupled with continuing consumer concern about unemployment or under employment is taking its toll on spending and slowing an already slow recovery,” he said.  “Additionally, while motor carriers have been increasing Driver wages, the major cost element in truck rate making, this has not fully been passed along in rate increases. As diesel prices rise, trucking costs will also and eventually make their way into the price of consumer goods.”