Cass: U.S. freight market ‘extraordinarily strong’

Accelerating growth in both volumes and spending a signal that “U.S. economy is ignoring all of the angst coming out of Washington” about potential trade war.    Growth in the North American freight market continued to accelerate in May despite increasingly difficult comparisons, according to the latest Cass Freight Index Report.
   Shipment volumes and expenditures extended a run of year-over-year increases that began 20 and 17 months ago, respectively, with volumes up 11.9 percent and spending up 17.3 percent compared with May 2017.
   On a sequential basis, shipment volumes climbed 5.9 percent, while freight spending was up 4.9 percent compared with the previous month.
   “From both a volume and a pricing perspective, the U.S. freight economy is extraordinarily strong,” wrote Donald Broughton, founder and managing partner of Broughton Capital and author of the report, adding that the acceleration in growth is a signal “that the U.S. economy is ignoring all of the angst coming out of Washington, D.C., about the potential of a trade war and all of the concerns coming out of Wall Street about the increased threat of inflation or the rise in interest rates.
   “Demand is exceeding capacity in most modes of transportation by a significant amount,” he said. “In turn, pricing power has erupted in those modes to levels that continue to spark overall inflationary concerns in the broader economy.”
   According to Broughton, double-digit growth rates in both shipments and expenditures “is yet another data point confirming that the strength in the U.S. economy continues to accelerate,” as this level of percentage increases have historically been limited to periods when the economy is emerging from a recession.
   Volume levels in May, April and March all exceeded any recorded in 2014, which was a very strong year, he said. Broughton further noted that February volume levels were roughly equal to those of June 2014, a comparison he called “extraordinary,” as it was a high point for the year and the June data point was recorded prior to the industrial recession that began in December 2014.
   He said the 11.9 percent year-over-year increase in shipments is that much more significant because the recovery in shipping began in the second half of 2016, meaning the May 2018 growth figure came against a tougher comparison and “only when comparisons were weak (i.e. 2009-10) were the percentage increases so high.”
   “Said another way, we normally only see such high percentage increases in volume when related to easy comparisons,” wrote Broughton. “That these percentage increases are so strong against tough comparisons explains why capacity is so constrained and realized pricing is so strong.
   “The first five months of 2018 are clearly signaling that, barring a negative ‘shock event,’ this year will be an extremely strong year for the transportation sector and the economy,” he said.
   In terms of expenditures, Broughton said the May index reading was a new all-time high, exceeding the previous record set in June 2014, adding that “the current trend appears to continue this trajectory.”
   “We have commented repeatedly that this was indicative of an economy that is continuing to expand,” he wrote in the report. “May’s 17.3 percent increase clearly signals that capacity is tight, demand is strong and shippers are willing to pay up for services to get goods delivered in all major modes throughout the transportation industry.”
   Freight spending turned positive on a year-over-year basis for the first time in 22 months in January 2017, although Broughton noted this was against an easy compariso, as the index in January 2016 reached lows not seen since 2011, when the U.S. economy was still rebounding from the Great Recession.
   Broughton attributed the continued growth in large part to a steady increase in the price of fuel and the associated carrier surcharges, but said that the increase attributable to fuel is now diminishing and trucking and intermodal carriers are gaining pricing power independent of oil prices.
   The Cass Truckload Linehaul Index, which measures rates excluding fuel surcharges, for example, grew 9 percent year-over-year in May, the largest increase in the history of the index, while the Cass Intermodal Price Index, which does include fuel, continued a 20-month streak of pricing gains with a 9.1 percent bump.