Shipment volumes were flat from the previous month, and expenditures were down just 0.6 percent, but both still remained well below 2015 levels, according to the latest Cass Freight Index Report.
The North American freight market continued to decline in July 2016 despite showing some signs of life the previous month, according to the latest Cass Freight Index Report.
Shipment volumes for the month were flat compared with June, while expenditures slipped 0.6 percent, but both still remained well below 2015 levels.
Cass noted shipments and expentditures fell 2.6 percent and 5.1 percent, respectively, compared with July 2015, the seventeenth straight month of year-over-year declines.
The logistics payment solutions provider attributed the persistent weakness in the market primarily to “increased levels of volatility as all levels of the supply chain (manufacturing, wholesale and retail) continue to try and work down inventory levels.” This weakness has been offset, in part, by growth in specific areas such as e-commerce and transportation modes serving the auto and housing/construction industries.
“Overall inventory levels remain elevated compared to sales, but with further improvement on many ratios in ‘2H (which we expect), and unless demand takes another step down, we believe the persistent drag of de-stocking should progressively lessen as we enter 2017,” it added.
In regards to shipment volumes, Cass noted railroads in particular have seen persistent weakness, with overall volumes being negative 77 out of the last 78 weeks. Combined traffic for U.S. Class I railways in July fell 6.1 percent year-over-year as intermodal units and commodity carloads dropped 5.4 percent and 6.9 percent, respectively.
Truck volumes, on the other hand, continue to be mixed “as tonnage continues to be slightly positive and load volume continues to be slightly negative,” according to Cass.
“No matter how it is measured, the data coming out of the trucking industry has been both volatile and uninspiring,” it said.
The firm attributed ongoing weakness in payments to an excess of capacity in most modes (trucking, rail, airfreight, barge, ocean container and bulk), along with the ongoing decline in diesel and jet fuel prices and corresponding fuel surcharges that influence pricing.
“Although at first blush it appears that in most modes the gap between spot pricing and contract pricing appears to be closing slightly, this is more a function of slight declines in contract pricing than it is a function of improvements in spot pricing,” noted Cass, adding that it sees “little reason to predict a change in course or material strength in either the contract or spot rates for most modes. Exceptions to this do remain in the parcel marketplace and forms of expedited transit supporting e-commerce.”
Donald Broughton, an economist and author of the report, said the firm is predicting a “flattish” second half of 2016.
“Overall industrial production continues to track between 0 and +1 percent thanks to the lift from autos and nondurables (goods consumption picked up in Q2 as seen in the GDP data),” said Broughton. “However, we are concerned that elevated inventories on dealer lots, along with slowing sales, will lead to U.S. auto production growing less than 1 percent on a YoY basis in Q3. Thus, we are now anticipating ‘2H manufacturing industrial production to be flat YoY, down from our prior hopes of a modest recovery into the up 1+ percent range.
“On the consumer side of the equation, we do see some signs of hope—especially for those retailers with a strong e-tailing or omni-channel offering,” he added. “As we have pointed out, the U.S. consumer has been saving and paying down debt with this disposable income for over six quarters. By this holiday season, we expect them to begin to spend at least part of their income. If not, the risk of an overall recession grows.
“That said, there is a bit of irony in our prediction of possible recession,” explained Broughton. “The longer the consumer saves and pays down debt, the more likely it is that the U.S. falls into a recession. But, the longer the consumer saves and pays down debt, the shorter and more mild the recession will be since there will be less excess to clean-up.”
The Cass Freight Index is based on domestic freight shipments of hundreds of the company’s clients across a wide variety of industries. Cass Information Systems processes more than $26 billion in annual freight payables.
North American freight market decline continues in July
