Rates still Up, but Trajectory Likely will Change Soon

Predicted for several months by transportation industry analysts, softness in the US freight market was finally seen in April with modest declines year-over-year and versus March.

Supply Chain Digest Says...   Denoyer also notes that, consistent with the fundamental reason for cyclicality in the freight sector, carriers are adding capacity response just as the surge in demand is ebbing. What do you say? Click here to send us your comments Click here to see reader feedback

Cass Information Systems and partner Tim Denoyer of ACT Research are fresh out with their monthly freight report for April, based on data from the billions of dollars of freight bills that Cass pays for its shipper clients.

The Cass Shipments Index, which includes multiple modes but is weighted towards full truckload freight, fell a small 0.5% versus April 2021, following a modest 0.6% year-over-year increase in March.

Shipments also fell 2.6% from March, 0.9% below the normal seasonal pattern in the month.

“After a nearly two-year cycle of surging freight volumes, the freight cycle has downshifted with a thud,” Denoyer wrote. He cites factors such as the rampant surge of inflation and recent interest rate increases as working to push volumes down.

Denoyer added that “The prospect of freight recession is now considerable, as substitution from goods back to services spending picks up pace, and as inflation slows overall spending, particularly via higher fuel prices and by pressing up interest rates.”

But the slight reduction in shipment volumes has not yet started freight rates falling yet.

In April, the expenditures component of the Cass Freight Index, which measures the total amount spent on freight, rose 0.2% month-over-month, while there was a shipments decline of 2.6%. That implies rates are rising, as volumes fell while expenditures rose.

However, Cass notes in truckload that spot rates have turned sharply lower ex-fuel recently in the more real-time spot markets.

However, Denoyer says, 2022 has featured signficant improvement in driver availability and slowing of freight demand.

“This is a deflationary combination [for rates], though it will take several months to filter from the spot market into contract rates,” Denoyer adds.

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Another look at rates comes from the Cass Line Haul Index, which measures US per mile contract truckload rates before fuel surcharge and other accessorials.

In April, the index was up 14.1% year-over-year to 167.1 after rising 14.2% in March. The index baseline is January 2010, set at an index level of 100. That means truckload rates are up 67.1% since then, or about an average of 4.3% per year.

“While truckload rates have had an extraordinary cycle, the key leading indicators have fallen sharply over the past few months, which we expect to limit further upside in the Cass Truckload Linehaul Index and change its trajectory over the course of the year,” Denoyer wrote.

He believes normal contract timing would suggest there’s room for this index to continue to rise for a little longer after the peak in spot rates, but “the clock is ticking,” for rates to start to fall.

Denoyer also notes that, consistent with the fundamental reason for cyclicality in the freight sector, carriers are adding capacity response just as the surge in demand is ebbing.

Each month, Cass nicely summarizes the state of freight, as seen in the graphic below for April:

Source: Cass Information Systems

Summing it up, Denoyer notes that the changing environment “will be good news to some, including shippers and those anxious about broader inflation, it is a sign for fleets to batten the hatches. Far from stagflation, these dynamics strongly suggest freight rate deflation is on the horizon.”

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