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Cass: August freight volumes at 4-year high; linehaul rates down 3rd straight month

‘Rates are topping out and set to slow sharply in the months to come’

Freight shipments advanced to more than a four-year high in August, according to data provided by Cass Information Systems on Wednesday. Freight costs increased again from 2021 levels but at a slower pace.

The Cass Freight Index showed shipments were up 3.6% year over year in August and 5.5% higher than in July on a seasonally adjusted basis. Additionally, July data was revised to a growth rate of up 1.9% y/y versus the initial report, which displayed a 0.4% gain. The August reading was the best recorded since May 2018 and is an outlier to signals of a loosening freight market.

“This data set stands above most other August freight indicators, but several of the soft August indicators are from the spot market,” ACT Research’s Tim Denoyer commented. “So, to some extent, the stronger Cass data reflect the ongoing shift from spot to contract.”

Denoyer also attributed the jump in volumes to other factors like China emerging from lockdowns, pre-holiday inventory stocking and easing supply constraints at the automotive manufacturers. He cautioned the “improvement may not be sustainable, especially as pressure increases on interest-rate sensitive sectors like capital goods and housing.”

August 2022
y/y

2-year

m/m

m/m (SA)
Shipments3.6%16.3%6.6%5.5%
Expenditures20.4%71.2%1.9%2.1%
TL Linehaul Index7.4%20.9%-1.8%NM
Table: Cass Information Systems. SA (seasonally adjusted)

Deterioration in the truckload spot market has dominated industry discussions since the spring as load opportunities have fallen and a large number of drivers making the jump to operate under their own authority upset a very tight supply-demand dynamic. The change in fundamentals has pushed spot rates nearly 40% lower from the peak. However, carriers with the bulk of their loads tendered under contract, especially in dedicated capacity arrangements, have seen a much more subdued falloff in rates.

Chart: (SONAR: NTIL.USAVCRPM1.USA). The blue-shaded area is the National Truckload Index (linehaul only – NTIL), which is based on an average of booked spot dry van loads from 250,000 lanes and 10,000 daily spot market transactions. The NTIL is a seven-day moving average of linehaul spot rates excluding fuel. The green line represents the seven-day per-mile average rate for dry van contract loads excluding fuel (reported on a 14-day lag). To learn more about FreightWaves SONAR, click here.

At an investor conference last week, management teams from some of the nation’s largest carriers said that while demand had slowed, their fleets remained overbooked each day. The call for peak season, however, was “murkier” than in recent years, according to Schneider National (NYSE: SNDR) CEO Mark Rourke. He expects this year’s peak to be on par with those of 2018 and 2019.

Commentary from the event was also constructive for contract rates, with the head of Werner Enterprises (NASDAQ: WERN), Derek Leathers, pointing to the potential for rates to remain positive in 2023. His expectation is rooted in a continuation of constrained equipment deliveries and the likelihood that recently issued operating authorities will be relinquished now that the spot market has rolled over.

Chart: (SONAR: OTRI.USA) A proxy for truck capacity, the Outbound Tender Reject Index, shows the number of loads being rejected by carriers. The index has fallen to just 5.5% compared to a year ago when fleets were rejecting more than 20% of loads under contract.

Cass expenditures data, measuring total freight costs including fuel, increased 20.4% y/y and was 2.1% higher than July when seasonally adjusted. The y/y growth rate in July was also revised 80 basis points higher. The increase in expenditures was due to a 5.5% rise in shipment counts, which was partially offset by a 3.2% decline in inferred rates. Inferred rates were up 16.3% y/y, the slowest increase since May 2021, as the comps have stiffened.

The report said 7 to 8 percentage points of the y/y growth rate in expenditures was likely tied to higher fuel prices. However, the decline in diesel prices from July to August was likely the driver of the sequential decline in rates during the month.

Assuming normal seasonality for the remainder of 2022, the index will increase 24% y/y for the full year. The forecast for when the expenditures data set may turn negative was pushed back two months to February.

“With the tight supply/demand balance in U.S. trucking markets easing considerably this year, industry rates are topping out and set to slow sharply in the months to come,” Denoyer continued. “While shippers aren’t seeing any real savings yet, such relief is now highly probable for 2023, which is welcome news for the broader inflation picture.”

The TL linehaul index, which excludes fuel and accessorials, was up 7.4% y/y in August but down 1.8% sequentially. August marked the third straight month of sequential declines.  

“On a m/m basis, the Cass Truckload Linehaul Index fell 1.8%, similar to the declines in June and July,” Denoyer said. “The clarity of the trend change in the past three months is rather stunning: after a 22-month cycle of increases that averaged 1.2% per month, the index fell m/m 1.76%, 1.78%, and 1.83% respectively in June, July, and August.”

He noted this year’s decline in spot rates in the run-up to Labor Day bucked the trend during the past two years, which saw mid- to high-single-digit gains. While those were both active hurricane seasons, Denoyer said it’s more than just bad weather that is pressuring rates.

“We think the divergence between this year’s early September rate trend with the past two is mainly due to the looser market balance. The shipment rebound is, so far, not enough to outweigh the 4%-5% growth rates in the driver and Class 8 tractor populations presently.”

Data used in the Cass indexes is derived from freight bills paid by Cass (NASDAQ: CASS), a provider of payment management solutions. Cass processes $37 billion in freight payables annually on behalf of customers.

More FreightWaves articles by Todd Maiden

Watch: Short-haul freight volumes outpace mid-haul freight volumes

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes Schneider (No. 7), Werner Enterprises (No. 10), Saia (No. 16), ArcBest (No. 26) and Forward Air (No. 37).

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.