According to data released on Monday by Cass Information Systems (NASDAQ: CASS), freight spending increased in June.
The Cass Freight Index’s expenditures component climbed 56.4 percent year over year and was 11 percent higher than the May reading (9.4 percent higher sequentially on a seasonally adjusted basis). The month had the subindex’s greatest year-over-year growth rate on record, surpassing the near-50 percent gain seen in May.
While the comparisons are skewed by a sharp decline in demand owing to widespread COVID-related lockdowns during the same period in 2020, ACT Research’s Tim Denoyer said that the newest freight rate report was up against “a bit tougher comparison” than in May.
He did say that going forward, the year-over-year comps will be higher.
Tender rejections continue to be high, with approximately one out of every four shipments under contract being rejected by carriers, according to FreightWaves statistics. The index for truck capacity and, as a result, rates is about to pass the year-ago level, when the market tightened as portions of the economy reopened.
Graph: (SONAR: OTRI.USA). Click here to learn more about FreightWaves SONAR.
The current truck market is oversold, and the industry is grappling with a shortage of drivers and equipment, so high rates are likely to remain.
“In the next months, tougher comparisons will naturally decrease these y/y increases,” Denoyer said, “but remarkable growth rates will persist in the near term, driven by rises in both cargo volumes and freight rates.”
June 2021 y/y 2-year m/m m/m y/y y/y y/y y/y y/y y/y (SA)
Shipments
-4.2 percent -4.2 percent -4.2 percent -4.2 percent -4.2 percent -4.2 percent -4.2 percent -4.2 percent -4.2
Expenditures
56.4 percent of people
27.9%, 11%, and 9.4%, respectively.
TL Linehaul Index is a metric that measures how well a
7.7% -0.4% 14.5 percent 14.5 percent 14.5 percent 14.5 percent 14.5 percent 14.5 percent 14.5 percent
N/A
Cass Information Systems is listed in the table below. (adjusted for season)
In June, implied freight rates (expenditures divided by shipments) grew by 23.4 percent year over year, more than double the rate of rise seen in May. In June, implied rates increased by 12.3 percent sequentially, more than offsetting the 7.8 percent fall in May.
“This result demonstrates that the accelerating trend continued into Q2,” Denoyer said, “although the volatility in May and June was mainly related to modal mix.” “In the dataset, the fraction of smaller/lower-cost LTL shipments surged in May, then fell back to a more normal level in June, and this mix shift pushed total embedded rates higher in June just as it pushed the series lower in May.”
Across all means of transportation, freight pricing was strong. More over half of the dataset is made up of truckloads.
The TL linehaul statistics showed a 0.4 percent decrease from May’s all-time high. The modest drop ended an 11-month run of consecutive rises. However, given rail service difficulties, the research attributes the reduction to an increase in length of route “rather than any weakness in rate trends,” as more imported freight is transloaded by truck from the West Coast to the Midwest.
The index was up 14.5 percent on a year-over-year basis.
Given high demand and capacity restrictions, Denoyer expected the linehaul index to rise in the near term, but added that “capacity is beginning to accelerate as drivers respond to increased pay and parts constraints begin to ease, which will shift the trajectory of truckload rates.”
Shipments Maintain your toughness.
The index’s shipping component was up 26.8% year over year but down 4.2 percent on a seasonally adjusted comparison to May.
“While still in the best ten outcomes over the last decade,” Denoyer explained, “the result reflects a slightly slower volume environment than May, which is consistent with numerous other broad freight measures, such as rail volumes and spot truckloads.”
Volumes are being weighed down by dwindling stimulus funds and supply restrictions (drivers, trailers, and chassis), according to him.
Rail volumes, the index’s second-largest component, increased by 22% year over year in the second quarter as compared to COVID-affected conditions a year ago. Denoyer anticipates high-single-digit year-over-year growth in rail traffic in the third quarter, as the year-ago comp (-6% ) remains accommodating.
“Despite material supply difficulties, the freight cycle continues to grow at a rapid pace, aided by a strong retail sector, low inventories, and a persistent backlog of container ships parked in San Pedro Bay,” Denoyer added. As “record capital goods demand and probable infrastructure plans” play out, he expects the industrial sector will begin to catch up to broader demand.
He highlighted that when transportation payrolls grow and extended unemployment benefits expire in some areas, the current capacity backdrop may begin to relax.
“The dynamics of limited supply and extraordinarily strong demand that have defined the past year or so will not endure permanently,” Denoyer added. “Several of the indicators we track are indicating new trajectories.” “As we like to say, high prices are the cure for high prices.”
Cass index data is collected from freight invoices paid by Cass, a financial management solutions provider. Cass manages $28 billion in freight payables for over 8,000 subscribers every year.
Todd Maiden’s FreightWaves articles can be found here.
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Pixabay image by Jeff Chabot.
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