May 2012 Cass Freight Index Report shows slow gains

Freight shipments and expenditures both saw gains on a sequential and annual level, according to the most recent edition of the Cass Freight Index Report from Cass Information Systems.

The Cass Freight Index accurately measures trends in North American shipping activity based on $20 billion in paid freight expenses of more than a hundred 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.

May shipments at 1.135 were up 1.8 percent compared to April and up 2.2 percent compared to May 2011. This marked the 24th 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. The rate of shipment growth on a sequential basis was behind April’s 1.9 percent and March and February’s 2.1 percent and 2.5 percent, respectively.

Expenditures at 2.447 were up 2.2 percent compared to May and up 5.6 percent compared to May 2011. In the report, Cass officials said that carrier costs are still trending upward, with rates following.

Many carriers have made this clear, explaining to LM that labor, equipment, and driver costs are three of the main functions impacting rates and pricing. And the report also noted that on the employment front, railroads, truck companies, and warehouse and distribution employment numbers have shown positive growth during 2012.

“While this is good from a future capacity standpoint, it does increase expenses now without volume and revenue growth to support,” the report noted.

In addressing the current state of the economy, the report noted that the economy is growing at a very slow rate, explaining that positive activity which occurred during the second quarter could very well “fizzle” out in the coming months. Reasons cited for this in the report included downward trending import and export numbers and trading partners not likely to increase spending, with Europe ostensible headed for recession and Asia-based economies also slowing down, too.

Other factors included what Cass said was a slowdown in manufacturing and backlog subsequently translating into lower volumes being shipped in the future and lower truck sales, and a volatile housing market.

In a recent interview with LM, Mike Regan, president of TranzAct Technologies and LM blogger, noted that on one end, businesses are doing well in terms of reporting profitability and managing costs and on the other hand are carriers who are exercising uncommon discipline in terms of managing capacity.

Regan said this development is stunning in the sense that while many indicators point to volumes coming back, they are still not close to 2007 levels. And if there were more confidence by carriers in the ability to grow long-term, it would be easier for carriers to move forward and build capacity, which is not happening.

Another factor regarding volumes is inventory management levels, said Regan.

“Inventory issues are having a disproportionate impact on what the index numbers are saying,” said Regan. “Those numbers should not be moved so much, based on inventory replenishment, because in a more normal type of situation you would not have the ebbs and flows with inventory restocking.”

In looking at the economy overall, Regan said even though there are some positive signs, there remains a dearth of people that truly have real confidence in the economy, which largely remains in the aforementioned teeter-totter mode.

And Charles W. “Chuck” Clowdis, Managing Director, Transportation Advisory Services, at IHS Global Insight, told LM that what may be keeping tonnage volumes relatively stable is “some of the continuing consumer pent-up demand and use of credit, which increased, as savings declined.”