The most recent edition of the Cass Freight Index Report issued this week by Cass Information Systems pointed to another month of annual freight transportation shipment and expenditure declines in November.
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.
November shipments, at 1.124, were down 3.3% annually and down 2.4% compared to October. And November expenditures, at 1.810, fell 1.4% annually and were up 0.04% over October.
The report said that while shipments and expenditures were again down from their respective peaks in May and September 2018, they are “less bad,” with annual comparisons not as negative as they were in November. What’s more, Cass expects annual growth to see a flattening out in the coming months, with the industrial economy expected to bottom out, coupled with relatively healthy consumer growth intact.
“We’ve been talking for several quarters now about how we’re in another freight recession (the other being 2015-2016) during this long tenured economic expansion in the U.S., which shows most clearly in the rail carload, LTL tonnage, and Cass shipment data,” wrote Dave Ross, Stifel managing director, in the report. “Some of this is due to an inventory destock (primarily at the retail level), while mush is due to the softening industrial economy (where we believe inventories are still elevated). Moving into 2020, we expect volumes to flatten out but not surge much, and a turn to positive [annual] comps in the shipments index could be seen as soon as January 2020.”
As for expenditures, Ross explained that the fact that shipments dropped more than spending implies that pricing remains above late 2018 levels.
“The fact that average spend per unit is up may sound strange, given the sharp drop in spot truckload rates in 2019 vs 2018, but most shippers move freight through the contract market, which necessarily lags any big changes in supply/demand,” wrote Ross. “Therefore, many contracts that were re-priced in 2018 still carried into and through much of 2019. Since the Cass Freight Index is a mix of freight modes (but >50% truckload), the outperformance of expenditures vs volumes reflects not only the aforementioned lag effect but also the better pricing power exhibited by the rail, intermodal, parcel, and LTL sectors. We expect transportation pricing growth to moderate in 2020 but remain inflationary, so our forecast is for freight expenditures to modestly outpace a generally flattish volume environment.”