June 2012 Cass Freight Index Report Reflects Sluggish Supply Chains

An ongoing trend of the economy flattening out was apparent in the most recent edition of the Cass Freight Index Report from Cass Information Systems.??The Cass Freight Index accurately measures trends in North American shipping activity based on $20 billion in paid freight expenses of more than a hundred of America’s largest shippers, according to Cass officials.

As Logistics Management – a sister publication – has reported, many trucking industry executives and analysts consider the Cass Freight Index to be the most accurate barometer of freight volumes and market conditions, with many analysts noting that the Cass Freight Index sometimes leads the American Trucking Associations (ATA) tonnage index at turning points, which lends to the value of the Cass Freight Index.
In June, freight shipments and expenditures were mixed sequentially and annually.

Shipments at 1.150 were up 1.3 percent over May and down 1.3 percent compared to June 2011. This represents the 25th consecutive month shipments were above the 1.0 mark since May 2010, when shipments moved above the 1.0 mark for the first time since November 2008. The rate of shipment growth on a sequential basis was behind May’s 1.8 percent, April’s 1.9 percent and March and February’s 2.1 percent and 2.5 percent, respectively.

Expenditures at 2.444 were down 0.1 percent compared to June and up 0.9 percent compared to June 2011 and were down for the first time since February. Expenditures for the second quarter were up 3.8 percent compared to the second quarter in 2011 and the first quarter’s 11.5 percent uptick compared to the same period the year before. Cass officials explained in the report that despite announced rate hikes by carriers the average revenue per shipment for trucks has been declining since April although rail and intermodal rates have still gone up while slowing somewhat in recent months.

They added that these numbers are indicative of how the economy has been flat for several months and are even beginning to trend downward in terms of new orders and manufacturing output. And subsequently Cass observed that the slowdown on manufactured goods is putting downward pressure on freight.

Taking this a step further, the report noted that for the first half of the year on a year-to-date basis, shipment volume was up 9.9 percent and freight expenditures were up 7.7 percent. Even though both metrics show growth, they pale in comparison to a year ago at this time, with shipment volumes for the first six months of 2011 up 15.5 percent over 2010.

On a quarterly basis, second quarter freight shipments were up 0.3 percent compared to the second quarter in 2011 and below the 1.8 percent bump in the first quarter. Despite this flattish growth, Cass said that the tight supply of freight transportation capacity seems to be due more to a contraction in fleet and driver size than to an increase in demand.

“The trucking industry is barely balancing supply and demand in this weak freight market, so it might just take a small increase in demand for more widespread capacity problems,” the report said. “Tonnage for 2012 has been uneven and reflects little growth for the first half of the year.”

According to the report, intermodal loadings were up 3.2 percent for the first half of 2011, with carloads down 9.3 percent.

Morgan Stanley analyst William Greene wrote in a research note that June’s Cass Shipment Index was inline vs. normal seasonal trend, which he said was not surprising after three months of relative outperformance. He added that his firm continues to “expect low single-digit growth in the Shipment Index for 2012, which historically has been most reflective of US domestic truck tonnage trends.”