December Cass Freight Index report shows slow growth to finish 2015

Declines for both shipments and freight transportation expenditures continued to end 2015, according to the December edition of the Cass Freight Index Report from Cass Information Systems.  While declines for both categories in December are commonplace in December, the report pointed out that December’s output marked the second straight quarter in which both shipments and expenditures dropped.

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.

December freight shipments—at 1.038 were 4.9 percent below November and down 3.7 percent annually, coming off of flat growth from October to November and a 4.7 percent decline from September to October. Shipments eclipsed the 1.0 mark for the 64th month in a row in December.  

While shipments were down 4.9 percent in December, they did not fall as much compared to the same period in 2013 and 2014, when they were down by more than 6.2 percent each time. Cass pointed out that 2015 holiday season online sales set a new record and helped to offset low brick and mortar sales. And it also pointed to retail trade seeing a 1.1 percent December decrease, while food services and drinking establishments sales were up 8.2 percent. What’s more, shipments were bargain-conscious, coupled with retailers not seeing increased sales from lower gas prices. And contraction in manufacturing, as based on data from the Institute of Supply Management also hindered shipment growth.

Expenditures–at 2.345 in December-fell 2.7 percent compared to November and dropped 5.2 percent annually. This represents the third month of declines, with Cass explaining it also follows a seasonal pattern and matches up with the drop in shipments, too, as well as reflect spot rates being down due to excess capacity.

The report said that both expenditures and shipments were down to 2013 levels by the end of 2015, with expenditures down 5.2 percent and shipments down 3.7 percent.

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 December report that this report’s data paints a picture of fiscally conservative consumers, with shipments and expenditures down even though employment is strong, coupled with moderate growth in household wealth and income.

The issue of high inventories also remains a problem for retailers, wholesalers, and manufacturers, which led to various goods being discounted, in addition to interest rates being raised by the Federal Reserve in December, she said.

“Inventory carrying costs rise with interest rates, and the money tied up in inventory that is not moving becomes a liability,” she wrote. “And this may get worse, as the Fed has discussed plans to raise rates several times in the coming year. Low warehouse vacancy rates are pushing the price of warehouse space. In short, the nation’s bloated inventories are becoming a problem.”

Other factors she cited included export demand being slow due to global economic condition, the strong U.S. dollar, and U.S. oil no longer competitive with falling oil prices.

Wilson said she expects 2016 to see a slow beginning, due largely to slowing manufacturing, high inventories, companies rationalizing employees, and six months of declines in freight volumes and expenditures.

Deutsche Bank analyst Rob Salmon wrote in a research note that although his firm “remains cautious about the near-term freight outlook due to elevated inventories, a weakening manufacturing sector, and softer e-commerce volumes post the holiday blitz, industry comparisons get easier beginning in March 2016.”