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Cass: ‘Considerable cost relief is now highly probable for 2023’

Shipments and costs to turn negative y/y in December

(Photo: Jim Allen/FreightWaves)

Shipments and freight costs were up again in October on a year-over-year (y/y) comparison, according to data from Cass Information Systems. However, the Monday report cautioned that a modest increase in volumes was due to a variety of circumstances that are unlikely to recur and that shipments will likely turn negative y/y by next month.

The shipments component of the Cass Freight Index increased 2.9% y/y during the month but fell 1.4% from September. The change marked the second straight sequential decline since the index hit a more than four-year high in August.

“After a soft 1H’22, with freight demand hit by inflation, substitution from goods back to services, and now excess inventory, the improvement in the past few months is still a little puzzling,” ACT Research’s Tim Denoyer said. He believes a combination of “unique comparisons,” a pull forward of merchandise ahead of the holidays and fewer constraints on supply were some of the catalysts for the improvement.

“These are all temporary to varying degrees, and quickly declining import trends suggest they may end soon,” he continued.

Assuming normal seasonality holds the rest of the year, Denoyer believes volumes will be flat in November and down 5% in December when compared with 2021 levels.

The expectation is in line with recent commentary from trucking management teams, indicating that volumes have not increased as is customary during peak season.


October 2022
y/y

2-year

m/m

m/m (SA)
Shipments2.9%3.7%-1.4%0.3%
Expenditures11.1%52.4%-4.9%-4.0%
TL Linehaul Index2.0%14.4%-1.5%NM
Table: Cass Information Systems. SA (seasonally adjusted)

Freight expenditures were up 11.1% y/y in October but down 4.9% from September. The data set measures the total amount spent on freight, including fuel. Weekly diesel fuel prices were 44% higher y/y on average during the month. This was the smallest y/y increase since November 2020.

Compared with two years ago, the expenditures index was 52.4% higher.

With shipments down just 1.4% sequentially, the Cass data infers rates were actually down 3.6% from September.

Cass also expects this index to inflect negatively y/y in December.

“The supply/demand balance in U.S. trucking markets has loosened significantly this year, and as a result freight rates are leveling off and set to soften further in the months to come,” Denoyer continued. “While shippers aren’t seeing any real savings yet, considerable cost relief is now highly probable for 2023, which we think will be welcome news for the broader inflation picture.”

The Cass Truckload Linehaul index, which excludes fuel and accessorial charges, was up just 2% y/y for the month, down 1.5% sequentially. This was the slowest y/y increase in the index since December 2020.

“With spot rates already down significantly, it’s only a matter of time until the index begins to decline on a y/y basis (December isn’t out of the question),” Denoyer said. “It doesn’t feel like a good environment because there is more supply chasing a similar amount of freight. And it is this imbalance that is allowing freight costs to begin to come down.”

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.

Chart: (SONAR: NTIL.USA). Spot truckload rates have fallen more than 40% since a January high. The National Truckload Index (linehaul only – NTIL) 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. To learn more about FreightWaves SONAR, click here.

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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.