July Cass Index report shows signs of economic weakness

Even though freight volumes have somewhat flattened out, the most recent release of the Cass Information Systems Freight Index pointed to economic slowness from June to July.

The July report Cass’ showed that shipments at 1.122 were down 3.7 percent compared to June, with shipments above the 1.0 mark for the 14th straight month going back to May 2010, when it topped 1.0 for the first time since November 2008. July shipments were up 11 percent annually, topping June’s 5.3 percent annual increase.

Expenditures in July at 2.373 were 2.1 percent below June and up 29.5 percent compared to July 2010.

As LM has reported, many trucking industry executives and analysts consider the Cass Freight Index as 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.

Even though Cass data shows that July was down, the ATA recently reported a 2.8 percent increase in its advance seasonally-adjusted (SA) For-Hire Truck Tonnage index in June. And its not seasonally-adjusted (NSA) index, which represents the change in tonnage actually hauled by fleets before any seasonal adjustment, checked in at 122.3 in June for a 5.3 percent sequential gain. On a year-over-year basis, SA tonnage in June was up 6.8 percent, marking its highest annual increase since January.

In her monthly analysis of the Cass report, Rosalyn Wilson, senior analyst with Declan Corporation, wrote that the already sluggish economy is continuing to weaken, due to high unemployment levels, a fragile housing market, and declining manufacturing output.

This was also evidenced in lower than expected GDP figures, with second quarter GDP growth just 1.3 percent, compared to an expected 1.8 percent growth rate. Other concerns cited by Wilson included sluggish retail spending and consumer confidence.

“The slowdowns throughout the economy are translating to lower freight volumes,” wrote Wilson. “Freight volume was down 3.7 percent in July, although it was 11 percent higher than a year ago. Despite the lower volumes, trucking companies are reporting having to turn down loads because of a lack of capacity. Load boards are full as shippers and some carriers have even turned to posting loads that need move. Unfortunately, the
reason for this situation is not a burgeoning freight market, but rather a reflection of the capacity constraints, for both trucks and drivers, that the industry is experiencing. The driver shortage is already causing problems as more trucking companies report that they have trucks, but no drivers. The trucking industry has lost more than 16 percent of its capacity during the last three years.”

This sentiment was shared by Noel Perry, FTR Associates Managing Director and Senior Consultant, in an interview.

Perry said that the underlying economics for trucking right now are basically flat, and there is no reason to expect conditions to accelerate yet but there is a chance it could happen at some point during the second half of the year. He added that there are mixed signals from a volume standpoint, with rates heading up substantially through a combination of fuel and accessorial charges.

“Capacity is tight right now but getting a little better because of the soft economy,” said Perry. “FTR estimates that the industry was about 150,000 trucks short in the first quarter, with that figure dropping by about 25,000 since then. And regulatory things like CSA and EOBR usage are starting to kick in, with changes in Hours-of-Service likely to kick in next year. Any further reductions in capacity from the economy are likely to be offset by regulatory issues. Volumes are not growing, and capacity conditions are relatively tight, with truckers getting the prices they need.”

Looking ahead to the remainder of the year, Perry expects freight conditions to remain relatively tight, with a 50 percent chance of things getting worse and a much higher potential for things to get worse in 2012. He also stressed that with current conditions disappointing, it is imperative for fleets to keep a close eye on the economy.