July Cass Freight Index Report shows minimal change in shipment and expenditure levels

The most recent edition of the Cass Freight Index Report issued this week by Cass Information Systems showed annual declines in July for freight shipments and expenditures, with flattish annual spreads.

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.

July shipments were flat compared to May at 1.111 and down 2.6 percent annually, coming off of a 1.7 percent May to June gain, and a 1.3 percent gain from April to May.  The report observed that U.S. rail carload and intermodal volumes, based on Association of American Railroads data have been negative in 77 of the last 78 weeks. On the trucking side, it noted that truck loads have contracted on an annual basis in three out of six months in 2016, with June’s annual decrease standing as the worst annual comparison going back to December 2012’s -4.4 percent. The report described the current state of truck volumes as volatile and uninspiring.

The report noted that its data confirmed that overall shipment volumes (and pricing) are persistently weak, with increased levels of volatility as all levels of the supply chain (manufacturing, wholesale, retail) continue to try and work down inventory levels. And it added that there have been a few areas of growth, mostly related to e‐ commerce, with lower levels of expansion being experienced in transit modes serving the auto and housing/ construction industries, which collectively led to slightly lower shipment volume in July, in its seventeenth straight month of year‐over‐year decline.  

Elevated inventories were identified in the report as a major hindrance to freight growth, having declined for five straight quarters at -3 percent of GDP, which it said is the longest stretch, save for a recession, going back to 1956-57 and largest in magnitude since 1995. 

And Cass said it expects inventory de‐stocking to continue into Q3 in retail, based on the NRF’s (National Retail Federation’s) Port Tracker survey.

“We remain concerned about elevated levels of cars on dealer lots, and we acknowledge continued efforts to streamline finished inventory in most machinery sectors,” wrote Donald Broughton, Managing Director, Chief Market Strategist and Senior Transportation Analyst, Avondale Partners, and new author of the report. “Overall inventory levels remain elevated compared to sales, but with further improvement on many ratios in ‘2H (which we expect), and unless demand takes another step down, we believe the persistent drag of de‐stocking should progressively lessen as we enter 2017.”

July freight expenditures fell 5.1 percent annually and were off 0.6 percent compared to June.

Cass also noted that a good amount of the freight shipments declines are due to excess capacity in various modes, including trucking, rail, air freight, barge, ocean container and bulk.  Other factors cited for the declines included still low diesel and jet fuel prices, coupled with corresponding fuel surcharges that it said influence pricing realized by shippers.

“Although at first blush it appears that in most modes the gap between spot pricing and contract pricing appears to be closing slightly, this is more a function of slight declines in contract pricing than it is a function of improvements in spot pricing. “We intend to dive far deeper into the pricing side of the equation in coming months, but see little reason to predict a change in course or material strength in either the contract or spot rates for most modes. Exceptions to this do remain in the parcel marketplace and forms of expedited transit supporting e‐commerce.”