Cass: North American freight market stems free fall in October

Shipment volumes in October 2016 grew 0.9 percent from the previous month and 2.7 percent compared with the same 2015 period, the first year-over-year increase in 20 months, according to the latest Cass Freight Index Report.    The North American freight market stemmed a 20-month free fall in October 2016 in what industry analysts have been calling a “more than normal fall surge” in demand, according to the latest Cass Freight Index Report.
   Shipment volumes in October grew 0.9 percent from the previous month and 2.7 percent from the same 2015 period, the first year-over-year growth since March 2015.
   “We have seen a wide range of results in the different modes: from continued volume growth in parcel and airfreight driven by e‐commerce, to a sequential improvement in truck tonnage, to less bad rail and barge volume overall,” said Donald Broughton, an economist with Avondale Partners and author of the report. “Although it is far too early to make a ‘change in trend’ call, data is beginning to suggest that the consumer is finally starting to spend a little and that the industrial economy’s rate of deceleration has eased.”
   Freight expenditures, on the other hand, slipped 3.8 percent compared with October 2015, but Cass noted the rate of contraction was still “less bad” than in previous months. Shipping payments contracted 10.1 percent year-over-year in May, 8.8 in June, 5.1 percent in July, and 6.3 percent in August.
   The logistics payment solutions provider attributed the improvement primarily to a steady increase in fuel prices over the past six months, as well as “some improvements” in pricing power of trucking and intermodal carriers. Broughton noted that a fundamental rule of marketplaces is that “volume leads growth,” meaning that shipment volumes generally increase in advance of pricing.
   “Simply put, the winter of the overall freight recession we have seen for over a year and a half in the U.S. may not be over, but it is showing signs of thawing,” he said.
   October volumes were driven specifically by e-commerce parcel shipments, with FedEx and UPS reporting U.S. domestic volumes up 10 percent and 5.2 percent, respectively, in the latest quarter, according to Broughton.
   Airfreight volumes in September (the most recent month for which data is available) also showed improvement, up 7.5 percent in the Asia Pacific and 4.7 percent in the Europe Atlantic trade lane, according to Avondale’s proprietary air cargo index,
   Rail volumes in the last 18 months have contributed to the overall decline in the North American fright market, but have become “increasingly less bad, and in recent weeks have actually turned slightly positive,” said Broughton. According to data from the Association of American Railroads (AAR), U.S. Class I railroad traffic has fallen in 89 of the last 92 weeks.
   “With the most recent week of data (ending Nov. 12) posting growth of 2.1 percent, however, rails may not serve as such a large drag to the overall Cass Shipments Index in coming months,” he added.
   U.S. rail volumes have suffered from a combination of a strong U.S. dollar and weak domestic industrial production driving fewer exports, and the current currency valuation indicates this trend will continue, said Broughton.
   He also said the lower price of diesel, which is driving domestic intermodal loads back to over‐the‐road trucks, as well as low prices of natural gas and stricter EPA constraints, are putting downward pressure on coal and crude oil shipments. Broughton said that after a dramatic drop in the first half of 2016, “even coal volumes are less bad, and positioned to be slightly positive on a year‐over‐year basis in early 2017,” but it should be noted that this is only compared to the near-historic lows seen in the beginning of 2016.
   The trucking industry has provided mixed results of late, as tonnage seems to be growing, but loads have contracted in five of the last seven months, according to the report.
   “No matter how it is measured, the data coming out of the trucking industry has been both volatile and uninspiring,” said Broughton.
   With regard to the recent United States presidential election, Broughton said President-elect Donald Trump released a “Contract with the American Voter” two weeks before the election, in which he outlined his intentions for his first 100 days in office.
   “The extent to which Trump’s initiatives could lead to higher rates of economic growth and larger volumes of freight flowing through the U.S. economy will depend upon which of the initiatives are (or are not) enacted and to what extent they are enacted,” he said.
   The Cass Freight Index is based on domestic freight shipments of hundreds of the company’s clients across a wide variety of industries. Cass Information Systems processes more than $26 billion in annual freight payables.