Freight Shipments and Expenditures Up Strong

Both the Cass Shipments and Expenditures Indices extended their run of positive year‐over‐year comparisons.

Shipment volume turned positive eleven months ago, while Expenditures turned positive ten months ago. Throughout the U.S. economy, we are continuing to see a growing number of data points suggesting that the economy continues to get incrementally better. The 2.9% year‐over‐year increase in the October Cass Shipments Index is yet another data point which confirms that the first positive indication in last October (before the election) was a change in trend. In fact, it now looks as if the October 2016 Cass Shipments Index, which broke a string of 20 months in negative territory, was one of the first indications that a recovery in freight had begun.

Although less positive than May and June, the October year‐over‐year percentage change looks less encouraging because the freight recovery started in the second half of 2016 (i.e. tougher comparison).Data continues to suggest that the consumer is finally starting to spend a little, albeit not with brick and mortar retailers. It also suggests that, with the surge in the price of crude in October of last year, the industrial economy’s rate of deceleration first eased and then began a modest improvement led by the fracking of DUCs (drilled uncompleted wells), especially in the fields with a lower marginal production cost (i.e., Permian and
Eagle Ford).

By way of background, Cass Expenditures Index is a measure of the total amount spent on North American freight.Typically, an increase in freight volumes correlates to an increase in the overall amount spent moving freight.

When the Expenditures Index rises more than the Shipments Index, as it did this month, then rates are also rising. Cass provides data on changes in per‐mile costs in the Cass Truckload Linehaul Index and the Cass Intermodal Price Index.

After posting an extraordinary 7.4% year‐over‐year increase in May, the Cass Freight Expenditures Index posted a 5.4% increase in June and a 4.5% increase in July, and then proceeded to post what we thought was a blow‐out 9.7% in August. Although not as strong as August, September’s 4.6% increase was still respectable and indictive of an economy that is continuing to expand. Then along came October’s 11.2% increase, which
was the second largest percentage increase posted in the last five years (June 2014’s 12.1% was higher).

Expenditures (or the total amount spent on freight) turned positive for the first time in 22 months in January 2017, albeit against an easy comparison. Not since 2011—when the economy was still climbing out of the recession—had this index been so low.

The company’s Expenditures Index in January 2016 was the worst in five years, as demand had weakened and crude oil had fallen below $30 a barrel. Although February and March of 2016 were also weak, they were not nearly as weak as January 2016 and hence a slightly tougher comp. Since fuel surcharges are included in the Expenditures Index, fuel was a negative bias in the data last year. Conversely, over the last several months we have observed that part of the increase was a result of the relatively steady increase in the price of fuel over the last nine months. But we are also seeing some
improvements in the pricing power of truckers and intermodal shippers.

As an example, the proprietary Cass Truckload Linehaul Index (which measures linehaul rates and does not include fuel) rose 5.5% on a year‐over-year basis in the month of October. The proprietary Cass Intermodal Price Index (which does include fuel), increased 1.9%.

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