Cass Freight Index report calls for higher rates and more port congestion issues

Even though the October edition of the Cass Freight Index report from Cass Information Systems stated last month that 2014 is on track to be strongest year for the freight sector since the end of the recession, that does not mean that there are no ongoing supply chain issues impacting freight flows.

In fact, despite a still relatively healthy market, this month’s report observed that there are plenty of concerns related to freight shipments in the form of imports, which are pegged for growth during this year’s holiday season, but at the same time are dealing with various issues, due to the port congestion issues being caused in large part by increased demand and West Coast port labor negotiations between the Pacific Maritime Association (PMA) and the International Longshore Warehouse Union. And as a result of this port congestion, the report noted that it is “causing trouble for retailers attempting to stock the shelves for the [holiday] season kickoff on Black Friday.”

As previously 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.

October freight shipments—at 1.153—were up 3.3 percent annually and down 0.9 percent compared to September. Shipments remained above the 1.0 mark for the 50th consecutive month.

Cass attributed the sequential shipment decline to the aforementioned port congestion issues, as well as a 0.6 percent drop in new orders for manufactured goods in September following a 10 percent drop in August.

Expenditures––at 2.668 in October––were up 6.4 percent annually and up 0.1 percent from September, which was down from the 0.8 percent August to September increase.

The ongoing decline in diesel prices, the report said, is in turn reducing the impact of fuel surcharges on carriers’ linehaul rates, and it added that the solid annual gain is showing that freight rates are gaining traction, while shippers are not giving in, save for the fact that they in most cases need to, due to parallel capacity issues.

“Most of the small parcel carriers have announced substantial rate increases in advance of the holiday season,” wrote Rosalyn Wilson, senior business analyst with Parsons, and author of the annual CSCMP State of Logistics report and contributor to the Cass report, in the report. “With the scarcity of equipment and drivers, rates have only one way to move.”

When assessing the current state of the freight transportation system, Wilson described it in one word: turmoil.

The reasons for this, she wrote, is that the congestion and slowdown at the ports deteriorated throughout October and now reached crisis proportions, especially at the ports of Los Angeles and Long Beach, which handle more than 40 percent of U.S. ocean imports and a large amount of consumer goods, which are need for the holiday season.

At the heart of the issue, wrote Wilson, is trucks being in short supply, coupled with the lack of chassis on which to move containers from ports to distribution centers and stores.

“A contributing issue is the larger TEU ships that bring more containers in a condensed time frame this time of year, as the current level of handling equipment is unable to keep pace,” she wrote. “These larger vessels can be up to one-third larger than the vessels that arrived in Los Angeles and Long Beach just a few years ago.”

She added that this has also resulted in drayage carriers reporting they can make fewer turns due to congestion, and trucks waiting for hours in line for pick up a container and then learning a chassis is not available.

In assessing the current situation, Wilson said that the “economics of supply and demand are finally coming back into play as chassis, trucks and drivers become scarce commodities and rates rise,” adding that industry stakeholders should “expect rates to continue to move up more quickly in the coming months.”