Q2 U.S. Bank Freight Payment Index sees declines driven by COVID-19

Freight shipment and spending levels pointed to a United States economy in recession, in the second quarter, driven by the ongoing COVID-19 pandemic, according to the most recent edition of the U.S. Bank Freight Payment Index, which was issued this week by Minneapolis-based U.S. Bank.

This report, which was initially launched in the third quarter of 2017, is comprised of data on freight shipping volumes and spend on both a national and regional basis. The report’s data is based on the actual transaction payment date, highest-volume domestic freight modes of truckload and less-than-truckload and is seasonally- and calendar-adjusted. Its historical data goes back to 2010, with a base point of 100, and its index point for each subsequent quarter marks that quarter’s volume in relation to the preceding quarter. U.S. Bank Freight Payment processes more than $28.8 billion in global freight payments for U.S. Bank’s corporate and federal government clients.

The report’s author, American Trucking Associations (ATA) Chief Economist Bob Costello, wrote that with much of the U.S. remaining in lockdown mode throughout the second quarter, there was a significant downturn in freight shipments and spend volumes, even though there were some signs of improved economic and trucking activity.

The report’s second quarter National Shipment Index—at 114.9—was down 7.6% compared to the first quarter and down 12.5% annually.  This followed a 1.8% decline from the fourth quarter of 2019 to the first quarter of 2020.

On the spending side, the report’s second quarter spend index—at 162.3—was off 13.7%, from the first quarter to the second quarter, and was off 19.4% annually. This came on the heels of a 3.7% decrease, from the fourth quarter of 2019 to the first quarter of 2020.

The decrease in spending was due to lower volumes, pricing and fuel prices, according to Costello, with pricing for both contract freight as well as spot market freight falling early in the second quarter. And he also observed that while spot market freight rates have risen, it can take longer for contract pricing to follow, coupled with the national price of diesel averaging 15.7% less during the second quarter than the first quarter, as shippers paid less in fuel surcharges.

In the report, Costello wrote that the sequential shipment and spend declines point to the broader economy declining by a wide margin, adding that sectors, like automotive, have seen sharper declines than others like construction and online retail.

“For carriers, the second quarter was particularly difficult with impacts to both volumes and pricing,” noted Costello. “While this situation has improved some, it took a toll. Many shippers saw demand for their products fall as most places remained in lockdown mode, even as they saved money on lower shipping costs.”

Looking ahead, Costello wrote that carriers and shippers need to be prepared to be nimble, with economic recovery being “likely to correlate to the trajectory of the virus and resulting ease of restrictions.”

And he added that carriers and shippers in retail, construction, and factory supply chains could possibly seeing better volumes over the second half of 2020, and online retail sales are expected to remain strong and brick and mortar activity expected to improve, with shoppers looking to get out and payrolls expanding. But, in the short term, if the COVID-19 pandemic gets worse and cases rise over the course of the second quarter, he said it could result in lower freight volumes.

On a regional basis, the report stated that second quarter shipments largely saw declines on a sequential basis, with the West down 1.8%, Southwest up 1.3%, Midwest down 5.5%, Northeast down 12.6%, and Southeast down 14.1%. Annually, shipments were down 15.7% out West, down 9.6% in the Southwest, down 13.5% in the Midwest, down 5.4% in the Southeast, and down 25.2% in the Northeast.

As for spend, on a regional basis, the report stated that second quarter spend saw declines on a sequential basis, with the West down 7.5%, Southwest down 14.2%, Midwest down 11%, Northeast down 12.7%, and Southeast down 21.4%. Annually, spend levels were down 13.7% out West, down 20.4% in the Southwest, down 21% in the Midwest, down 19.1% in the Southeast, and down 26.4% in the Northeast.

The report’s second quarter results were in line with comments from U.S. Bank Freight Data Solutions Director Bobby Holland earlier this year, when he told LM that it was likely that the economy would take a hit in the second quarter, which was apparent in the first quarter, especially from mid-March on, which is when stay at home orders across the country went into effect.

And Holland proved to be spot on in noting that a rebound in consumer confidence will take a while, too, with the expectation, at the time, that the second quarter would be a challenging quarter all around.”

Holland also said that there is a clear unknown impact for freight, which will become clearer over time to see what the consequences will be.

“Some of this has to do with certain states looking to reopen their economies, and….it is a gray area as to what happens on the other side of that,” he said. “Supply chains may be further stressed and some reports indicate there may be a second wave [of COVID-19] towards the end of the second quarter. We don’t know what the impact is going to be, as we will all have to sift through the rubble and see how it all sorts out, as data comes in. Even with states planning to open up, there is no hard, concrete definition of what that means, in terms of things being business as usual in a new normal. We know it is going to be challenging, and there will be supply chain concerns regarding essential goods, as long as the virus is still having a major impact.”