April Cass Freight Index shows sequential and annual growth for shipments and expenditures

Reversing a trend which occurred in February and March, cost growth outpaced shipment growth, according to data in the most recent edition of the Cass Freight Index report.

The Cass Freight Index accurately measures trends in North American shipping activity based on $17 billion in paid freight expenses of more than a hundred of America’s largest shippers, according to Cass officials.

As LM 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.

April shipments at 1.115 were up 1.9 percent compared to March and up 0.2 percent compared to April 2011. This marked the 23rd 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. Even though shipments showed growth, the rate of growth lagged behind March and February’s 2.1 percent and 2.5 percent, respectively.

And expenditures at 2.395 were up 3.4 percent compared to March and up 5.1 percent compared to April 2011. Cass officials said in the report that “the impact of moderate contract rates, which shippers negotiated last year when they were expecting significant increases in 2012, has been the dampening of what would otherwise be upwardly moving rates,” adding that “[r]ates on the spot market rose throughout most of March in response to increasing demand and tightening capacity.”

In her analysis of the report, Rosalyn Wilson, senior business analyst at Delcan Corporation and author of the Annual State of Logistics Report published by the Council of Supply Chain Management Professionals, said that April’s 3.4 percent gain in expenditures shows “continued strength as capacity closely matches demand, especially in the trucking sector…with much of the strength in rates [coming] from contract rates that were negotiated early last year anticipating a faster economic growth rate and capacity issues that were expected to cause a spike in rates. So far we have not been able to sustain a growth spurt, so rates have only increased modestly.”

Wilson added that comparing the increase in freight growth to the growth in freight shipments shows that payments are again rising faster than volume. And she said that since operating costs for truck carriers have been steady, it translates to a better bottom line, but this “tenuous” balance between demand and supply in the trucking sector could be eradicated if volumes were to significantly rise.

This was a common theme at last week’s NASSTRAC Logistics Conference & Expo, with various carrier executives highlighting cost pressures that are common with large fleets, due largely to labor and equipment costs, which are both steadily rising.

And should volumes recover more quickly than expected, Wilson observed that the 20 percent loss in capacity and productivity losses due to new regulations will be felt quickly, with many carriers deploying an asset-light model that restricts the ability to quickly add capacity and carriers making trucking replacements for fleet replacement rather than capacity expansion.

While shipment growth did not exceed cost growth, the freight economy continues to remain in a “teeter-totter”-like state, explained Mike Regan, president of TranzAct Technologies and LM blogger.

“On one end, businesses are doing well in terms of reporting profitability and managing costs,” he said, “and on the other hand are carriers who are exercising uncommon discipline in terms of managing capacity.”

Regan said this development is stunning in the sense that while many indicators point to volumes coming back, they are still not close to 2007 levels. And if there were more confidence by carriers in the ability to grow long-term, it would be easier for carriers to move forward and build capacity, which is not happening.

Another factor regarding volumes is inventory management levels, said Regan.

“Inventory issues are having a disproportionate impact on what the index numbers are saying,” said Regan. “Those numbers should not be moved so much, based on inventory replenishment, because in a more normal type of situation you would not have the ebbs and flows with inventory restocking.”

In looking at the economy overall, Regan said even though there are some positive signs, there remains a dearth of people that truly have real confidence in the economy, which largely remains in the aforementioned teeter-totter mode.