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North American freight market shows signs of life in December

Shipment volumes for the month slid 1.2 percent from November, but were up 3.5 percent compared with the same 2015 period following a 0.5 percent year-over-year decrease the previous month, according to the latest Cass Freight Index Report.

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Shipment volumes in December were up 3.5 percent compared with the same 2015 period, according to Cass

   The North American freight market rebounded slightly in December 2016 after slipping back into negative territory the previous month, according to the latest Cass Freight Index Report.
   Shipment volumes in December fell 1.2 percent from the previous month, but were up 3.5 percent compared with the same 2015 period following a 0.5 percent year-over-year decrease in November. The November decline followed an October in which shipment volumes stemmed a 20-month free fall, registering their first year-over-year growth since March 2015.
   Donald Broughton, an economist with Avondale Partners and author of the report, said the increase in December may suggest the October increase was more than just a blip on the radar.
   “Now December – coming in up 3.5 percent – suggests that the October data was not a false positive but instead the beginning of a more positive trend,” said Broughton. “We have seen a wide range of results in the different modes, from continued volume growth in parcel and airfreight driven by e-commerce; to a sequential improvement in truck tonnage; to less bad rail and barge volume overall.
   “Data is beginning to suggest that the consumer is finally starting to spend a little and that with the recent surge in the price of crude, the industrial economy’s rate of deceleration has eased,” he added.
   Freight expenditures for the month dropped 1.1 percent compared with November and 3 percent from 2015 levels, but Cass noted that like in November and October, the rate of contraction was still less than in previous months. Shipping payments contracted 10.1 percent year-over-year in May, 8.8 in June, 5.1 percent in July, and 6.3 percent in August.
   The logistics payment solutions provider attributed the improvement primarily to a steady increase in fuel prices over the past six months, as well as “some improvements” in pricing power of trucking and intermodal carriers. Broughton noted that a fundamental rule of marketplaces is that “volume leads growth,” meaning that shipment volumes generally increase in advance of pricing.
   “If the winter of the overall freight recession we’ve been in for more than a year and a half in the U.S. is not yet over, it is certainly showing promising signs of thawing,” he said.
   December volumes were driven by “outstanding” growth in e-commerce parcel shipments, with FedEx and UPS reporting “strong” U.S. domestic volumes, according to Broughton.
   Airfreight volumes in November (the most recent month for which data is available) also showed improvement, up 7.8 percent in the Asia Pacific and 13.4 percent in the Europe Atlantic trade lane, following respective increases of 10.5 percent and 3.6 percent the previous month, according to Avondale’s proprietary air cargo index.
   Rail volumes in the last 19 months have contributed to the overall decline in the North American fright market, but have become “increasingly less bad, and in recent weeks have actually turned slightly positive,” said Broughton. According to data from the Association of American Railroads (AAR), U.S. Class I railroad traffic, which has fallen in 92 of the last 100 weeks, grew 2.7 percent for carload and 11.2 percent for intermodal in December.
   U.S. rail volumes have suffered from a combination of declining prices for energy commodities like coal and oil, a strong U.S. dollar and weak domestic industrial production driving fewer exports, but the latest data “suggests that the higher price of crude (WTI over $52 as we write this) is driving increased activity in oil and gas exploration, as companies with DUCs (Drilled Uncompleted Wells) are choosing to proceed with fracking operations,” he added.
   “Just as the dramatic drop in fracking led us into the industrial recession in March 2015, it now appears to be in the early stages of leading us out,” he said. “Bottom line, rails may not serve as a drag to the overall Cass Freight Shipments Index in coming months, but may instead start to be a positive.”
   The trucking industry has provided mixed results of late, as tonnage seems to be growing, but loads contracted in five of the last seven months in 2016, according to the report.
   “No matter how it is measured, the data coming out of the trucking industry has been both volatile and uninspiring,” said Broughton.
   The Cass Freight Index is based on domestic freight shipments of hundreds of the company’s clients across a wide variety of industries. Cass Information Systems processes more than $26 billion in annual freight payables.

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