North American freight market growth accelerates in December

Shipment volumes for the month slipped 0.3 percent from November, but were up 7.2 percent compared with December 2016, while expenditures were up 0.3 percent sequentially and 16 percent year-over-year, according to the latest Cass Freight Index Report.    The North American freight market showed continued, even accelerating growth in December 2017, and could be poised to reach further record highs in 2018, according to the latest Cass Freight Index Report.
   Shipment volumes and expenditures extended a run of year-over-year increases that began 15 and 12 months ago, respectively, with volumes up 7.2 percent and spending up 16 percent compared with December 2016.
   On a sequential basis, shipment volumes slipped 0.3 percent and expenditures grew 0.3 percent compared with the previous month.
   Donald Broughton, founder and managing partner of Broughton Capital and author of the report, said the continued growth in December “is yet another data point which confirms that the first positive indication in October 2016 (before the election) was a change in trend.”
   In addition, Broughton said the December 2017 shipments index was a new all-time high, surpassing the previous record set in October 2014, during what he described as an “extraordinarily strong freight market overall and before the industrial recession (which started in December of 2014) had begun.”
   “As December 2017 achieved a level even above the record freight year of 2014, we find it easy to predict 2018 is poised attain new record highs,” added Broughton.
   In terms of expenditures, Broughton said the Cass index has been posting larger and larger year-over-year increases in 2017.
   “We have commented repeatedly that this was indicative of an economy that is continuing to expand,” he wrote. “December’s 16.0 percent increase clearly signals that capacity is tight, demand is strong, and shippers are willing to pay up for services to get goods picked up and delivered in 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 comparison,” as the index in January 2016 reached lows not seen since 2011, when the U.S. economy was still rebounding from the recession.
   Broughton attributed the continued growth in part to the deluge of parcel volumes associated with e-commerce, but said the current strength of the freight market can be attributed to more than just the ongoing growth of e-commerce.
   “On the capacity side, we should point out that most modes of transportation under‐invested in infrastructure and capacity in the last two to three years, with the notable exceptions being FedEx, UPS and XPO Logistics,” he said. “Hence, capacity in general hasn’t expanded. The Electronic Logging Devices (ELDs) rule recently imposed on the trucking industry may not constrain capacity as much as is widely feared, but it certainly won’t expand capacity.
   “Capacity concerns aside, we believe this is much more of a demand story, and we see two basic factors at work on the demand side,” Broughton added.
   Those factors are the strengthening of the industrial economy and the consumer economy.
   “Simply put, industrial activity is alive and well – and accelerating strongly. The recent changes to the tax law and the ability to accelerate depreciation should only serve to further strengthen the capital‐intensive industrial economy,” wrote Broughton.
   In the consumer economy, Broughton said the millennial generation has “begun to prove the critics wrong” by getting married and purchasing their first homes, noting that there are even more millennial than baby boomers.
   “Millennials have started to form households, and thus have started the goods accumulation phase of their lives as well,” he said. “Consumer spending is poised to be strong for the foreseeable future, and the recent appearance of some wage inflation only emboldens our view on this.”