December Cass report points to stagnant economic conditions in 2012

The December edition of the Cass Freight Index report released by Cass Information Systems earlier today was reflective of 2012 overall in some ways, in that things were flattish overall when it came to shipments and freight expenditures, according to the report’s authors.

The Cass Freight Index accurately measures trends in North American shipping activity based on $20 billion in paid freight expenses of roughly 350 of America’s largest shippers, according to Cass officials.

As LM has 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.

Like November, December freight shipments were up annually and down sequentially. Shipments at 1.071 were down 2.0 percent compared to November and up 1.2 percent compared to December 2011. December is 30th consecutive month shipments were above the 1.0 mark since May 2010, when shipments moved above the 1.0 mark for the first time since November 2008.

Rosalyn Wilson, senior business analyst with Delcan Corporation and author of the annual CSCMP State of Logistics report, said in the report that part of the drop in shipment volume in early December can be attributed to the Port of Los Angeles and Long Beach port strike at the beginning of the month, with things largely returning to November by month’s end. She added that shipments of building materials into the Northeast for recovery efforts from Superstorm Sandy were expected to bolster shipment volume but did not offset the slowdown in retail shipments.

“Throughout 2012, month?to?month changes in shipment volumes closely mirrored those of 2011, with four months coming in lower than the corresponding month in 2011,” wrote Wilson. “In the end, the volume of goods moved in 2012 barely exceeded that of 2011. In tandem with a weak global economy, the U.S. economy, which seemed poised on the brink of growth at different points during the year, posted dismal GDP growth in 2012 (for the first three quarters, 1.9, 1.3, and 3.1 percent respectively). The jump in the third quarter was primarily due to inventory investment (and as it turned out, inventory accumulation) and increased government spending, presumably ahead of the end of the fiscal year and in anticipation of the “fiscal cliff.” Fourth quarter GDP estimates signal that the fourth quarter slowed substantially, falling back into the 1.5 to 1.6 percent range.”

December freight expenditures at 2.364 were 0.9 percent below November and 4.0 percent higher than December 2011. Expenditures are now up for the fourth straight month, following three months of declines from June through August.

And with inventories high and retail holiday sales disappointing, Wilson said it was not surprising that 2012 “ended on such a flat note.”

Slow economic growth, wrote Wilson, precluded rate increases, despite increases in operating costs. These operating costs increases were due to things like severe weather events, labor strikes, and ongoing capacity issues, the report noted. Another factor it cited was a lack of available funding that caused infrastructure investment to lag, as evidenced by various road and bridge failures.

Looking ahead, there appears to be a “more of the same” theme setting up for 2013, with GDP pegged at 2 percent, the current unemployment rate unlikely to change due to an insignificant growth rate to lower it, and an anticipated slow rise in business investment. On top of all these headwinds, Wilson explained that consumer spending, which accounts for about two-thirds of economic activity and has led every economic recovery since the Great Depression, has not led the charge this time.

“Economic uncertainty is impacting the carrier market; carriers are not adding capacity, which I have been told this by carrier after carrier after carrier because the ROI is not there,” said Mike Regan, president and CEO of TranzAct Technologies, in a recent interview. “This limits the incentive to add capacity, and the only reason demand is currently higher than supply is because of this.”

And Charles “Chuck” Clowdis, Managing Director, North America Global Commerce & Transport Advisory Services, at IHS Global Insight, said that freight numbers—in terms of the number of shipments, amount of freight spend—languished along in December with lackluster performance that hopefully does not forecast 2013.

“But if the economy does not see more people back at work, so consumers can spend with confidence, I’m afraid we will have to get accustomed to these numbers,” he said.