November Cass Freight Index data sees declines in shipments and pricing from October

The impact of Hurricane Sandy was apparent in freight shipment and expenditure data in the November edition of the Cass Freight Index report released by Cass Information Systems earlier today.

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.

November freight shipments were up annually and down sequentially. Shipments at 1.093 were down 4.0 percent compared to October and up 3.5 percent compared to November 2011. This marks the 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.

In her analysis of the report, Rosalyn Wilson, senior business analyst with Delcan Corporation and author of the annual CSCMP State of Logistics report, pointed out that the “dramatic downturn” in November shipments data represents lost freight movements during and after Hurricane Sandy. But with the hurricane notwithstanding, Cass said the report was not robust, coupled with the fact that with freight invoices being the primary source of Cass’s data, which is reported based on invoice processing date rather than actual shipment date, it creates in a slight time lag between when the freight moves and when the data is processed.

Other factors cited by Wilson for sluggish shipment volumes include mostly decreasing manufacturing output, as reported by the Institute for Supply Management. In its Manufacturing Report on data released earlier this week, the ISM reported that the PMI, the index ISM uses to measure manufacturing growth slid for the fourth time in the last six months in November, with November dropping to its lowest level since July 2009. New orders and new export orders were two of the main culprits in November’s lacking manufacturing numbers.

November freight expenditures at 2.342 were 5.8 percent below October and 3.3 percent better than November 2011. With this gain, expenditures are now up for the third straight month, following three months of declines from June through August.

“Most trucking carriers have reported a very soft pricing environment, with little success in getting rate increases to stick,” noted Wilson. “This does not track well with the overall utilization rate and demand, but the economy has not been able to support sustained price increases. Towards the end of the month, truck spot prices trended upwards and capacity tightened, likely from freight that had been backed up by the weather. The steep drop in rail shipments during the month had the impact of lowering freight spending. Rate growth has been much slower in 2012 than 2011.”

What’s more, the Department of Commerce recently issued a revised figure for third quarter GDP growth of 2.7 percent, up from 2 percent. This revision was higher than expected, explained Wilson, given that even while the housing market is rebounding and unemployment has leveled off somewhat there are still no strong signs more people will be hired in the coming months, coupled with the ongoing uncertainty being wrought by the ongoing Fiscal Cliff negotiations in Washington, which she said appears to be stalling investment in inventory and hiring.

Mike Regan, president and CEO of TranzAct Technologies, recently told LM that even though the GDP figure was revised, the economy is devoid of true growth.

If there was actually 2.7 percent GDP growth, these numbers would be much different,” he said. “There does not seem to be a correlation between the freight indices and this reported GDP growth. 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. This limits the incentive to add capacity, and the only reason Demand is currently higher than supply is because of this.”

In her closing comments of the report, Wilson said that the transportation sector continues to move ahead without a lot of steam, as volumes are not growing quickly enough to put pressure on the system. And even with the trucking sector nearly at full employment, a small incremental jump in growth could result in a crisis due to diminished capacity.

This decline in capacity, she said, is due to things such as difficulty hiring and retaining drivers, tight credit, high costs for new equipment, and productivity impacts of regulations.

All of these things, according to Wilson, are pointing the trucking sector towards a “perfect storm,” which will harm the country’s ability to move goods efficiently and on time and will eventually lead to pricing heading back up, which spells bad news for shippers.

Charles W. “Chuck” Clowdis, managing director, Transportation Advisory Services for IHS Global Insight, said that the November Cass report indicates that both retailers and manufacturers are concerned about what is actually happening in the US Economy.

“Taxes after January 1 are anyone’s guess, and holiday spending is being bantered around as going to be record setting the season,” he said.  “In my opinion, both consumers and retailers, and hence the transport companies are sitting on their hands until more certainty in key indicators are become a bit more certain.”