Cass Truckload Linehaul Index points to solid rates intact for November

Pricing for truckload carriers remained solid in November, according to the most recent edition of The Cass Truckload Linehaul Index from Cass Information Systems and Avondale Partners.

This report made its debut last month. It is based on actual freight invoices paid on behalf of Cass clients, which accounted for more than $17 billion in 2010, and uses January 2005 as its base month. Cass and Avondale said that this 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.

The base value of the index is 100, with November coming in at 108.4 for an 8.5 percent annual gain. Due mainly to tougher annual comparisons, the index is down on a sequential basis, when compared to October’s 108.8 and September’s 111.0. September was up 11.0 percent annually, marking the highest linehaul pricing increase from carriers since the 2005 baseline period, according to Cass and Avondale.

In comments he made about this month’s report in a research note, Broughton said that although the index has leveled off, its continued strength as represented by its absolute number reaffirms that capacity remains tight and carriers are being more disciplined regarding pricing and capacity additions in this cycle.

“The news continues to bode well for all of the truckload carriers that are capable of demanding higher pricing, and should end up foreshadowing a very strong calendar 2012 for most carriers when they start to re-bid significant amounts of their freight business in the Spring of next year,” wrote Broughton.

Much of what is driving truckload rate increases stems from the fact that carriers are facing operational challenges and are now more focused on yield management, according to Mike Regan, president and CEO of TranzAct Technologies and blogger for LM.

Regan said this basically means that carriers are looking at their books of business and looking at their operating ratios. If an operating ratio is over 100, Regan said carriers are going to institute corrective action to have operating ratios running at 92 or lower.

“Carriers at 105 or 110 are starting to institute corrective pricing…over 2012 and 2013 to get that operating ratio down,” said Regan. “And pending government regulations are going to affect available capacity in the carrier marketplace and drive up rates.”

In a previous research note, Broughton explained that the objective of this index was to deliver a more timely barometer of truckload pricing than the one provided by the American Trucking Associations (ATA), which does not fully “remove the effect of diesel in its revenue per mile series,” adding that the ATA’s revenue per mile series—on both a seasonally-adjusted or non-seasonally adjusted basis—tracks more closely with Cass’ Truckload Total Cost (per mile) Index, which is more sensitive to changes in diesel than with Cass’ Truckload Linehaul (per mile) Index. He added that whereas the ATA reports truckload pricing roughly 45 days after the end of the month, Cass data is ready to be analyzed three-to-five days after the end of the month.

“The fact that Cass processes $17 billion in freight bills annually is significant,” Broughton told LM in an interview. “The biggest concern initially when putting this together was protecting confidential information of Cass’ customers, as many of them compete directly with each other and do not want each other to have access to their respective freight spend. Once that was taken care of it is a matter of going through the data and delineating it to strip out accessorial and fuel-related charges.”

Removing fuel from the equation provides a better gauge of actual base prices, too, for both shippers and carriers, in that it provides a better baseline for gauging rates, said Broughton.

While Cass and Avondale are currently focusing on truckload pricing for this index, Broughton said they will also collaborate to put together similar ones for other modes in the future.