Cass Freight Index shows mixed signals and potential signs of economic contraction

The most recent edition of the Cass Freight Index, which was released earlier this week by Cass Information Systems, showed signs of concern relating to freight conditions and potential economic contraction.

Many freight transportation and logistics 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) index at turning points, which lends to the value of the Cass Freight Index.

February shipments, at 1.173, headed up 4.0% compared to January’s 1.128 and were down 2.1% annually and up 4% compared to January. This marked the third consecutive month of negative shipments after a 0.8% decrease in December, which marked the first annual shipment decline in 24 months, and a 0.3% annual decline in January. As previously reported, the December and January shipment readings were up against respective all-time highs reached in December 2017 and January 2018, coupled with stabilizing patterns in nearly all underlying freight flows.  

Donald Broughton, the report’s author and principal of Broughton Capital, wrote that while it is still too early to turn completely negative in its outlook, it is “prudent to become more alert to each additional incoming data point on freight flow volume,” adding that he is more cautious now than since the report began predicting the recovery of the U.S. industrial economy and the rebirth of the U.S. consumer economy in the third quarter of 2016.

Addressing shipments, Broughton observed that there is concern relating to what he called “severe declines” international airfreight volumes, especially in Asia, and lackluster railroad volumes in auto and building materials. But, on a more positive note, he said the 4% sequential gain in shipments was reassuring, as well as solid U.S. domestic trucking volumes, especially in truckload dry van. What’s more, he said that he is closely watching rail volumes of chemicals and other shipments, which have lost momentum in recent weeks, and could offer up the first evidence of the global slowdown coming to the U.S.

“The data in the coming weeks will indicate whether this is a pause in the rate of our economic expansion or the beginning of an economic contraction,” he wrote. “If a contraction occurs, then the Cass Freight Shipments Index will have been one of the early indicators once again.”

February expenditures, at 2.874, saw a 5.5% annual gain and a 2.9% increase over January.

This reading, explained Broughton, represents continued, but muted, overall pricing power for supply chain stakeholders moving freight, adding that demand is still exceeding capacity in most modes but not to the degree it was during the majority of 2018. And he added that as this is the seasonally weakest part of the year, it is not normally prudent to use current capacity utilization rates to predict a change in pricing trends, save for circumstances like in 2018, when demand far exceeded capacity, even during the seasonally-softer period.

Even though there remains concern about inflation and how it could impact rates, the report noted that most modes of transportation are using the current pricing environment to create capacity, which will “first dampen and eventually kill pricing power.” Another factor it cited is that spot pricing, excluding fuel surcharges, for truckload dry van, reefer, and freight, has been trending down over the last eight months, with spot dry van pricing down 19.7% since its June 2018 peak and is down 24.5% compared to contract pricing.