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Cass: ‘The freight cycle has downshifted with a thud’

April shipments slide 3.5% from March, freight costs still at record level

April data points lower (Photo: Jim Allen/FreightWaves)

Freight markets cooled in April, according to data provided by Cass Information Systems. “The prospect of freight recession is now considerable,” a Thursday report from the payments management provider read. Broad inflation, including higher diesel prices which impact the cost of everything shipped, interest rate hikes, and a transition in consumer buying habits to services from goods, drove the decline.

Freight shipments posted a modest dip in April, down 0.5% year-over-year, but a 3.5% decline from March (seasonally adjusted) is more likely to catch the eye of industry participants. The report cautioned that “more softness is on the horizon” as the comps get tougher in the coming months and the impact from production shutdowns in China is felt.

“After a nearly two-year cycle of surging freight volumes, the freight cycle has downshifted with a thud, ACT Research’s Tim Denoyer commented. “It’s possible the April data include some indirect impact from lockdowns in China, but with container ship backlogs still off North American ports, the direct effects on finished goods imports seem more likely in the June/July timeframe.”

The downturn, however, is likely to be more pronounced for small carriers operating in the spot market. Numerous drivers obtained authority to operate on their own last year, buying equipment at record-high prices to chase record-high spot rates. The incremental capacity combined with a recent softening in freight demand has dented spot market fundamentals, making is a much tougher slog for the small operator working off load boards.

April 2022y/y2-yearm/mm/m (SA)
TL Linehaul Index14.1%28.9%2.3%NM
Table: Cass Information Systems. SA (seasonally adjusted)

Freight costs not flinching, though

Cass’ expenditures subindex inched higher from a March record, up 0.2% sequentially. However, the dataset’s move was worse than normal seasonal patterns, down 2% seasonally adjusted. The decline in shipments weighed on the month-over-month change.

The sideways move in the month is little relief to shippers. Compared to a year ago, the expenditures index was 30.6% higher and 90% above the early days of the pandemic (April 2020).

The index was up 38% last year and is forecast to climb 24% in 2022, assuming normal seasonal trends hold the rest of the year.

Inferred rates (expenditures divided by shipments) stepped 31.3% higher year-over-year, up 1.5% seasonally adjusted from March. A fresh high was established in the dataset, but higher fuel surcharges are inflating the numbers.

The report highlighted the potential for “significant deceleration in the next six months.”

“2022 has featured big improvement in driver availability and slowing of freight demand,” Denoyer continued. “This is a deflationary combination, though it will take several months to filter from the spot market into contract rates.” He noted risks to the call that capacity will loosen further include new COVID variants or a worsening in the chip shortage, which would further constrain Class 8 truck production.

Chart: (SONAR: NTIL.USA, VCRPM1.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.

In addition to higher fuel costs, excess miles and accessorial fees are propping up inferred rates. Freight that traditionally moves via intermodal has been forced onto a truck, given a bogged down rail complex. Incremental costs and extra miles associated with the modal shift are inflating the index.

Denoyer believes the true cost of moving freight is somewhere between the inferred rate dataset (+31%) and the truckload linehaul index, which was up 14.1% year-over-year. Up 2.3% from March, the linehaul index hit a new high in April.

“Normal contract timing would suggest there’s room for [the TL linehaul] index to continue to rise for a little longer after the peak in spot rates, but the clock is ticking,” Denoyer said. “While this will be good news to some, including shippers and those anxious about broader inflation, it is a sign for fleets to batten the hatches. Far from stagflation, these dynamics strongly suggest freight rate deflation is on the horizon.”

More FreightWaves articles by Todd Maiden

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.