Cass reports ‘freight slowdown’ in March

Freight shipments advanced in March but at a slower pace, according to data released Wednesday from Cass Information Systems. Freight expenditures, however, continued upward at a blistering pace.

The volumes subset of the Cass Freight Index increased just 0.6% year-over-year in March, 300 basis points slower than the growth rate logged a month ago. The dataset was also 1% lower than February when seasonally adjusted.

“While a few points of softness in Q1 were due to omicron-related absenteeism, freight was slowing even before the war in Ukraine began,” ACT Research’s Tim Denoyer commented in the report.

First-quarter volumes slowed to a 0.4% year-over-year growth rate, after climbing 4.3% in the fourth quarter and 9.5% in the third quarter.

“The threat of freight recession has risen recently as services reopen, inflation presses up interest rates and — though war-related effects are likely to be modest in the near-term — higher energy prices have an increasingly negative effect over time,” Denoyer added. “We’re certainly seeing a freight slowdown and spot market correction, but in our view, it is too early to call it a freight recession.”

The dataset represents all domestic transportation modes but is heavily weighted to truckload (50%) and less-than-truckload (25%). The March report showing a cooling in demand comes as commentary and data points for the TL industry have skewed negative, the result of capacity bleeding back into the market and spot rates falling quickly.

The cost of moving freight surges again

The expenditures index jumped to a record level, up 33.2% year-over-year. Compared to March 2020, the index is 70% higher as freight expenditures have climbed 53% over that period with higher volumes making up the difference. Seasonally adjusted, expenditures dipped slightly from February.

The expenditures index is forecast to increase 25% in 2022 as the year-over-year comparisons stiffen. The outlook is based on “normal seasonality” for the remainder of the year. However, 2022 has been anything but normal as volumes remained elevated to start the year, falling in March when they normally improve.  

Inferred rates (expenditures divided by shipments) were up 32% year-over-year and 1.1% higher than February (on a seasonally adjusted comp). This was the slowest sequential increase for the index in the last seven months. Also, inferred rates are being boosted by congestion throughout the rail complex, forcing more freight onto truck, meaning more miles and higher costs.

“The m/m increase is mainly as omicron-related effects on capacity continue to push rates higher, which may continue to impact contract rates for a couple more months, even as downward pressure now emanating from the truckload spot market will have an increasing slowing effect over the course of the year,” Denoyer wrote.

He estimates the true increase in freight costs is somewhere between the increase in inferred rates and the TL linehaul index, which was up 14.2% year-over-year in March. The inferred rate includes all modes. The linehaul dataset excludes fuel and accessorials.

The linehaul index was up roughly 17% year-over-year excluding the impact from an increased length of haul. Denoyer’s math showed for each 100-mile jump in length of haul the per-mile rate declines 2.1%.

“The pendulum has begun to swing,” Denoyer said. “In early April, truckload spot rates inflected to y/y declines for the first time this cycle, but not the last.” He pointed to ACT’s driver availability index, which has returned to late-2018, 2019 levels, a period when rates were in decline, as further evidence.

“Labor has recovered strongly from omicron, which is deflationary for freight rates. Of course, spot rates are a leading indicator, so most of the effects of this change in the cycle will be felt further in the future,” Denoyer concluded.

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