September Cass Freight Index report shows growth but questions remain about economy

Even with gains occurring for both freight shipments and expenditures annually and sequentially in the month of September, the most recent edition of the Cass Freight Index report released today indicated that does not necessarily translate into true economic growth.

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.

Freight shipments—at 1.156 were up 0.1 percent compared to September 2012 and up 2.7 percent compared to August. September is the 38th consecutive month shipments topped the 1.0 mark since May 2010, when shipments moved above the 1.0 mark for the first time since November 2008. The report explained that sequential gain is the biggest month-to-month increase since March.

What’s more, it added that volumes were up for the second month (with August volumes up 1.7 percent), marking the first time since the recession that there has been any type of a “Peak Season bump in volume.” But while Peak Season is typically associated with retail good-type of freight and cargo, Cass officials said this growth was primarily spurred by a manufacturing growth instead of restocking for the back-to-school and holiday seasons.

Even with growth in volumes, the report said that monthly volumes have been below 2012 levels each month since April, with total 2013 shipments year-to-date 3.7 percent below September 2011 volumes. And it noted that the Association of American Railroads reported that a three-week stretch of weekly intermodal volumes was its highest in history, and that manufacturing production got back on track in August, and that the American Trucking Associations saw a 1.4 percent gain in August volumes.

Rosalyn Wilson, senior business analyst with Delcan Corporation and author of the annual CSCMP State of Logistics report, wrote in her analysis of the report that although these volume growths “coincides with the traditional peak season, resulting in the peak season bump, it is not indicative of a strengthening economy as we begin the fourth quarter.”

Freight expenditures—at 2.575—were up 5.2 percent annually and up 5.2 percent compared to August.

The report took note of the fact that for the fourth straight month 2013 expenditures were higher than 2012 and 2011 levels were. Wilson wrote that while there has been some upward pressure on spit rates in recent weeks, rates generally have been flat to slightly up, explaining that higher load-to-truck ratios (more volume per truck) and greater volumes are driving increased expenditures, rather than rate increases.

“Volume demand and carrier supply are still balanced, and therefore rates have been contained. Despite the precarious supply and demand situation in the trucking sector, which is between 95 and 98 percent engaged, shortages have not been widespread,” Wilson wrote. “Shippers are acknowledging that a capacity crisis is looming and have kept up the pressure to hold rates level. They are, however, taking steps to ensure that they have the capacity they need when things tip over the edge.”

That sentiment was widely confirmed at the recent FTR Transportation Conference in Indianapolis, with many shippers noting a capacity crunch is inevitable, and carriers said that with a capacity crisis, likely to be driven by the new motor carrier Hours-of-Service regulations that took effect July 1 and other regulations like CSA, the most effective way to ward it off is through holding onto the best drivers for optimal service and reliability, coupled with a firm emphasis on driver training.

But until rates truly inch up, shippers, said Stifel Nicolaus analyst John Larkin, have done a good job of “tuning out the [regulatory] noise” and are not going to pay a mid- or high-single digit increase until they need to do so.

Wilson said that with the trucking industry still in a precarious balance with more than 95 percent capacity utilization and various regulatory and cost pressures indicating a looming capacity problem, the more difficult part is gauging when a capacity shortage will actually occur. She went on to comment that the “economy is growing slowly enough that the tipping point remains just on the horizon.”

Against the backdrop of a moderate economy and likely pending capacity and rate-related issues are the ongoing federal government shutdown, which is now in its second week, and the October 17 deadline for when the debt ceiling will be reached. Wilson said that each week of a government shutdown takes 0.1 percent off of GDP, with the end result being that both of these things are having a negative effect on the economy as well as contributing to falling consumer confidence.