North American freight market ticks up in June

Shipment volumes and expenditures both increased compared with the previous month after three months of lackluster performance, but still remained well below 2015 levels, according to the latest Cass Freight Index Report.    The North American freight market showed some signs of life in June after three months of lackluster performance, according to the latest Cass Freight Index Report.
   Shipment volumes in June 2016 inched up 1.7 percent compared with the previous month, while expenditures jumped 3.9 percent.
   Despite the growth, both volumes and payments remained well below the levels seen in the last several years, said Cass. Shipments for the month were still down 4.3 percent from last year and 7.6 percent from June 2014, and despite the second largest monthly increase this year, expenditures were 8.8 percent below 2015 levels.
   The logistics payment solutions provider attributed the tepid growth in 2016 primarily to weak global trade volumes and economic growth in the United States.
   Cass noted U.S. exports fell 6.9 percent in the first five months of 2016 compared with last year, while imports were down 5.2 percent during over the same period.
   Meanwhile, U.S. gross domestic product (GDP) – the broadest measure of the health of an individual economy – grew just 1.1 percent in the first quarter compared to a 1.4 percent growth rate the previous quarter. Federal Reserve Bank of Atlanta’s GDPNow model currently predicts second quarter GDP growth will come in at 2.3 percent.
   “June’s shipments are in step with patterns that have been observed in the past few years, but are still well below the volume in the last two years,” said Cass. “July usually sees a dip in the number of freight shipments, but the first part of July seems to be fairly robust.”
   After continued weak volumes in April and May, U.S. railroad traffic shot up 29.3 percent for carload shipments and 23.4 percent for intermodal in June, according to data from the Association of American Railroads. The American Trucking Associations reported truck tonnage was up 2.7 percent in May, and DAT Solutions reported that spot market loads increased 28 percent in June, meaning truck tonnage should also be up in June.
   A portion of the overall June growth resulted from stores stocking up on school supplies in preparation for the rush at the end of summer and early fall, said Cass, adding that the increase in expenditures resulted primarily from the higher shipment volumes.
   “Abundant available truck capacity has provided strong competition for rail intermodal, holding down rates for both,” the firm added. “With the relatively slow and bumpy freight market so far in 2016, rates should stay flat with expenditure changes tied closely to the volume of freight shipments.”
   The uneven economic performance in the first half of 2016 has been “perplexing,” according to Cass, and the volatility is expected to continue.
   “Consumer spending has been growing, although the effect on freight is small as most of this increase has been in the service sector (which hired 256,000 new workers in June),” the firm said. “Inventories are mostly unchanged at uncomfortably high levels, but the inventory-to-sales ratio fell in April for the first time in over a year. Exports and imports are down, residential and commercial construction has been slowing, and consumer spending on goods is weak.
   “That said, the manufacturing sector is awakening with a 3.9 percent growth in production, 2.3 percent increase in new orders and an 11.7 percent growth in order backlog,” it added. “The Federal Reserve recently decided against another interest rate hike, citing ‘considerable uncertainty’ in the U.S. economic outlook and ‘vulnerabilities’ from abroad.
   “While the second quarter was stronger than the first, the mixed signals in the air make the third quarter uncertain.”
   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.