Cass Freight Index report highlights a still strong freight market

Even with myriad events like a fluctuating stock market in recent weeks, the new-and possibly permanent trade war, and general global tension often take center stage in the news, one thing that has remained steady and strong is the health of the freight market.

That point was driven home in the September edition of the Cass Freight Index Report by Cass Information Systems.

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.

September shipments, at 1.241, were up 1.1% compared to August and up 8.2% annually.

Donald Broughton, the report’s author and principal of Broughton Capital, wrote in the report that an 8.2% annual gain in shipments is the result of an expanding economy, adding that Cass is hard pressed to imagine a scenario, save for the catastrophic geopolitical event, in which such a strong rate of freight flow expansion was possible or even a precursor to an economic contraction.

September marks the 24th straight month of shipment growth. The report noted that while the current level of volume and pricing growth is signaling that the U.S. economy is growing, that level of growth may have reached its short-term expansion limit.

“We are confident that the increased spending on equipment, technology, and people will eventually result in increased capacity in most transportation modes,” Broughton wrote. “That said, many modes continue to report limited amounts of capacity or even no capacity at any price shippers are willing to pay.”

September expenditures, at 2.990, headed up 2.5% compared to August and were up 19.3% annually, with Cass stating this marks the 21st consecutive month of growth for expenditures.

The report explained that these gains are signaling ongoing pricing power for those in the marketplace that move freight.

“Demand is exceeding capacity in most modes of transportation by a significant margin,” Broughton wrote. “In turn, pricing power has erupted in those modes to levels that continue to spark overall inflationary concerns in the broader economy. With the Expenditures Index up 19.3%, we understand those concerns, but are comforted by two factors: the cost of fuel (and resulting fuel surcharge) is included in the Expenditures Index and the cost of diesel was up 17.3% in September; almost all modes of transportation are using the current environment of pricing power to create capacity. Especially to the extent that pricing is materially exceeding the marginal cost of creating that capacity, market participants are investing heavily in the exact activities which kill pricing power in commodity markets (i.e., expansion of capacity with the belief that current pricing power will endure for an extended period of time).”