State of Freight: Volume and Pricing Strong, Capacity Tight but Less Tight

Both the Shipments and Expenditures indices extended their run into positive territory. They are still displaying accelerating strength on top of increasingly difficult comparisons, but while capacity is tight it is slightly less tight.

That said, demand is still exceeding capacity in most modes by a significant amount. In turn, pricing power has erupted in those modes to levels that spark overall inflationary concerns in the broader economy. As we explained in previous months, we do not fear long-term inflationary pressure as technology provides multiple ways to ever-increase asset utilization and price discovery in all parts of the economy, especially in transportation. In fact, we are seeing early signs that ELDs (Electronic Logging Devices) initially hurt the capacity/utilization of truckers, especially small truckers, but those truckers most adversely effected are now beginning to get some of the loss in utilization back.

Transportation is a Leading Indicator

Shipments first turned positive eighteen months ago, while expenditures turned positive fifteen months ago. The current level of volume and pricing growth is signaling that the U.S. economy is not only growing, but that level of growth is expanding. The 10.2% YoY increase in the April Cass Shipments Index is yet another data point confirming that the strength in the U.S. economy continues to accelerate. This level of percentage increase is usually only attained when emerging from a recession, not when comping against already strong statistics.

Although a seasonally weakest part of the year, the first four months of 2018 are clearly signaling that, barring a negative ‘shock event’, 2018 will be an extraordinarily strong year for transportation and the economy. April and March exceeded all levels attained in all months in 2014 (a very strong year), February was roughly equal to the peak month in 2014 (June 2014 – 1.201 vs February 2018 – 1.198) which is extraordinary. A YoY stacked chart highlights that, similar to the pattern which began in November and December 2017, the Shipments index is exceeding all previous respective months.

The YoY percentage change is notable because the freight recovery started in the second half of 2016 (i.e., tougher comparison) and because only when comparisons were weak (i.e., 2009-2010) were the percentage increases so high. Said another way, we normally only see such high percentage increases in volume when related to easy comparisons. That these percentage increases are so strong and strong against tough comparisons explains why our outlook is so bullish, why capacity is so constrained, and why realized pricing is so strong.

 

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