Cass Freight Index report points to 2015 growth but short-term obstacles linger

Keeping in line with seasonal patterns that have been intact since the conclusion of the Great Recession, both shipment volumes and freight spending declined from December to January, although each saw annual gains, according to the most recent edition of the Cass Freight Index report from Cass Information Systems.

Many freight transportation and logistics 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.

The report noted that the economy was “much stronger” in 2014, with the year representing the best year for the supply chain sector since the recession. But even with a strong performance, strong GDP seen during the second and third quarters tailed off in the fourth quarter in the form of more modest growth, coupled with the ongoing issues at West Coast ports centered around labor and capacity issues and also negatively impacting late December shipment volumes.

January freight shipments—at 1.027—were up 2.7 percent annually and down 4.7 percent compared to December. Shipments remained above the 1.0 mark for the 53rd consecutive month. Despite the sequential shipment decline, Cass said that January’s reading represents the highest shipment level since January 2012. It added that trucking tonnage from the American Trucking Associations was flat to finish the year, while U.S. railroads have seen recent gains in both carloads and intermodal but were not absorbed in the Cass shipment volume because growth in commodities like coal and grain typically move in large bulk and dedicated unit train moves and are not typically prevalent in the Cass database.

Expenditures––at 2.333 in January––were up 3.0 percent annually and down 5.7 percent compared to December. Cass said this is largely due to the drop-off in January shipments and a weak freight market during the month, which kept rates in place. And as was the case on the shipments side, even with a sluggish end to 2014, January expenditures were positive in the sense that it marked the best January performance on record based on Cass data.

What’s more, with carriers maintaining pricing power and a tight capacity environment, 2014 freight spend, said Cass, was higher than any previous year. And that trend is likely to continue, should capacity remain “precariously balanced,” but when the economy picks up as the year moves along, Cass said it expects a “steeper rise in dollars spent” that will be visible in the form of higher freight rates, even though freight volume is not at pre-recession levels while current freight spending is above 2007 levels.

Rosalyn Wilson, senior business analyst with Parsons, and author of the annual CSCMP State of Logistics report and contributor to the Cass report, wrote in the report that the U.S. economy is showing decent signs of progress, including: an improving GDP rate, consistent new job creation, real net income and household worth showing gains, low to moderate inflation, and low gas prices.

On top of that, she cited improving consumer confidence and GDP at 3.5 percent or higher in four of the last six quarters. But with economic gains come higher rates, which she said is “good news for carriers as most of the industry is in agreement that the ability to control rates is shifting back into the hands of carriers and that rate increases will be significant.”

Conversely, though, she explained that sustained 2015 growth will exacerbate the capacity problems that occurred in 2014, as carriers lack the necessary capacity, infrastructure, and systems to move freight in tandem with 2015 freight volume gains.

“Bad weather, labor problems, fleet capacity issues for truck, rail, and other equipment, especially container chassis and inadequate infrastructure will combine to not only create new bottlenecks, but also push up the cost to move freight,” she wrote. “Fleet capacity and especially infrastructure issues cannot be corrected in the short term, despite aggressive investment plans already announced by carriers.”

At last month’s SMC3 Jump Start 2015 conference, Robert W. Baird & Co. analyst Ben Hartford noted that overall the U.S. economy is in a good place, relative to other countries, which bodes well for future freight growth.

Hartford cited things like the ongoing price declines in oil and gas, the U.S. dollar strengthening, and an improving U.S. consumer outlook as key economic themes to follow early in the New Year.