Cass and Avondale data highlights declining truckload and intermodal rates

Declines remained intact in June, based on data in the most recent edition of the Truckload and Intermodal Cost Indexes from Cass Information Systems and Avondale Partners, which was released last week.

This pricing data is part of the Cass Truckload Linehaul Index and the Cass Intermodal Linehaul Index, which were both created in late 2011. The indices are based on actual freight invoices paid on behalf of Cass clients, which accounts for more than $23 billion annually and uses 2005 as its base month.

Cass and Avondale said the truckload index “isolates” the linehaul component of full truckload costs from other components such as fuel and accessorials, which in turn provides an accurate reflection of trends in baseline truckload prices.

Truckload rates, which measure linehaul rates only, fell 1.8 percent annually in June, marking the fourth consecutive month of declines, following 0.6 percent, 2.3 percent, and 1.2 percent declines in March, April, and May, respectively.

The report noted that Avondale analysts have further adjusted their pricing forecast range downward, from -3 percent to 1 percent, for the remainder of 2016, while adding that various factors are leading to excess capacity, including driver pay increases, over all fleet growth, a reduction in carrier bankruptcies, and an easing o the 34-hour restart rule.

This pricing forecast decline is consistent with what large carriers are saying about current market conditions.

In its second quarter earnings release, Werner Enterprises reported that the contractual rate market became increasingly challenging as the second quarter progressed.

“An excess supply of industry trucks relative to sluggish freight demand created a market in which customers began to push harder for contractual rate decreases, the company said. “During the recent contractual bid season, we chose to exit from certain contractual business that would have required significant contractual rate decreases for the next year, since we believe that this pricing is not sustainable and that freight market conditions will begin to show improvement during the next year. Based on the current rate and freight market, we believe it may be difficult to sustain rate per total mile on a year-over-year basis, or achieve increases, in the next few quarters.”

BB&T Capital Markets Analyst Thom Albrecht wrote in a recent research note that following a dismal period from January through May, there was an improved tone in June, which was followed by moderating demand in July. But to truly say that the market has indeed turned, he explained that both data and anecdotes need to improve in August and September, which, he described as two months that have disappointed every year since 2006, with the exception of 2014.

June intermodal rates on an “all in basis” dropped 1.5 percent in June compared to June 2015, marking 18 straight months of annual rate declines.

May intermodal rates on an “all in basis” dropped 2.0 percent annually, falling for the 17th month in a row, with Avondale saying it expects rates to continue declining for the remainder of 2016, due to the dramatic drop in diesel prices taking its toll on U.S. domestic demand.

Avondale analysts said in the report that historically there is a “high degree of correlation between truckload and intermodal pricing,” adding that as contract rates for trucking continue to lose strength and move further into negative territory, “[this] would imply even more potential weakness for intermodal pricing.”

Even though domestic intermodal volumes have seen volume gains in the mid-single digits range, intermodal has not seen growth levels it is accustomed to in the form of more robust growth, even though industry fundamentals are solid over all, coupled with gains in fuel pricing that helps to serve as a bit of an intermodal tailwind.