Indicators lining up for more freight growth

Freight boxes in warehouse

Recent markers highlight volume increases; ATA report predicts 3.4% annual growth through 2023

Freight, orders and optimism continue to populate the minds of many carrier and shipping executives these days as more data points suggest the economy is continuing to improve. And it’s optimism that even uneven retail sales and consumer confidence can’t hide.

Reports from DAT and the Cass Freight Index highlight the positive momentum while the American Trucking Associations long-range forecast is calling for increased freight, even if some of that freight will begin moving to rails.

The Cass Freight Index for June showed that, for the sixth consecutive month, shipments and expenditures (total amount spend on freight) remained positive. Cass reported the shipments were up 4.8% year-over-year in June and expenditures increased 5.4%.

”Throughout the U.S. economy, there is a growing number of data points suggesting that the economy continues to get slightly better,” Cass’ report, authored by Donald Broughton, noted. “Some data points are simply less bad, but an increasing number of them are better, and even a few are becoming outright strong. The 4.8% YoY increase in the June Cass Shipments Index is yet another data point which confirms that the first positive indication in October was a change in trend.”

The October 2016 Cass Shipments Index was the first one in positive territory in 20 months.

On a nominal basis, Cass reported June’s level at 1.163, down only slightly from May’s 1.168.

DAT’s latest data is showing much the same thing. Record van and flatbed volumes for the week of July 9-15 were recorded, but rates did not follow, DAT said. Van spot rates dropped from $1.90 per mile to $1.83. Flatbed dropped a penny to $2.20 and refrigerated fall to $2.12 down 5 cents.

Cass also noted that pricing leverage has started to shift to carriers and intermodal shippers as volume tends to lead pricing.

“We are also seeing some improvements in pricing power of truckers and intermodal shippers,” Broughton noted. “As an example, the proprietary Cass Truckload Linehaul Index (which measures linehaul rates and does not include fuel) rose 1.5% on a YoY basis in the month of June, following April’s 1.3% increase which was the first increase posted since February 2016. The proprietary Cass Intermodal Price Index (which does include fuel), increased 1.8% in June.

“Repeatedly we have watched in a host of different markets, that volume goes up before pricing starts to improve and volume goes down before pricing starts to weaken,” he added. “Even in markets as basic as the weather, the number of hours of sunshine (sunrise to sunset) starts to decline long before the temperature starts to fall.”

Volumes have been rising in recent months, led by parcels related to e-commerce.

“According to the proprietary Broughton Capital index in the most recent month available (May), airfreight has also been showing improving strength, with the Asia Pacific lane jumping 12.3% and the Europe Atlantic lane growing,” Broughton reported. “The recent surge in Asia Pacific airfreight gives us increasing confidence in the technology segment of the global economy, not because everything that moves in this lane is a semiconductor, but because the largest overall segment/type of good that is moved via airfreight in this lane has one or more semiconductors in it. Hence, there historically has been a high level of correlation between Asia Pacific airfreight and semiconductor billings. This is good news for economies in Asia, and good news for the technology segments of the U.S. economy.”

Rail has also been increasing, turning positive in recent weeks. Year-over-year overall commodity carloads originated by U.S. Class 1 railroads grew by 3%, and intermodal units grew by 4.9%, according to the Association of American Railroads (AAR).

Truck tonnage, which Cass suggests is becoming less important as an indicator (Cass suggests number of loads moved is more relevant in an e-commerce/omni-channel marketplace), remains uneven.

“Tonnage itself appeared to be growing and gaining momentum (three-month moving average reached +3.1% on a not seasonally adjusted basis in January),” Broughton said. “Unfortunately, the months since have been both volatile and inconsistent: February, March, April, May, and June tonnage was -2.7%, 1.1%, -1.2%, 4.8%, and 1.6%, bringing the three-month moving average down to just 1.7%.”

Dry van loads have contracted six of the past eight months, Cass noted, and now has a three-month rolling average of negative 1.9%.

 Over the long term, ATA’s Freight Transportation Forecast 2017 predicts freight volumes to grow 2.8% this year and continue with annual growth of 3.4% through 2023. More modest growth of 2.3% will continue in the years following.

In terms of tonnage, ATA predicts that 15.18 billion tons of freight will be moved this year, jumping t 20.73 billion tons by 2028.

“As the U.S. population grows and the economy increases with it, we will see continued gains in demand for freight transportation,” said ATA Chief Economist Bob Costello. 

“Over the forecast period, capacity shortfalls will develop,” the report said. “We are starting to see some selected tightness in freight handling capacity, enough to suggest that capacity expansion will be required if the modes are going to be able to handle anticipated growth.”

 “While overall truck volumes will continue to rise, and trucking will remain the dominant freight mode – its share of freight tonnage will dip to 67.2% by 2028, with pipelines picking up most of the additional market share, and, to a lesser extent, rail intermodal,” Costello said.