Shipment volumes and expenditures both slowed from the previous month and the same 2014 period, according to the latest Cass Freight Index Report.
North American shipment volumes and expenditures both slipped in October 2015 after increasing the previous month, according to the latest Cass Freight Index Report.
The logistics payment solutions provider said overall shipment volumes fell 4.7 percent month-over-month following a 1.7 percent increase in September.
Cass said the decrease was expected, and followed “the trend observed in the last four years,” of both freight volumes and expenditures dropping during the month, but noted its index for freight shipments has fallen to its lowest October level since 2011.
“This month’s decline was much sharper than in recent years and can be directly correlated to falling imports and exports as well as decreased domestic manufacturing levels,” said Cass. “Burdened by bloated inventories, and under the shadow of a possible interest rate increase by the Federal Reserve, businesses cut back on new orders placed in the last three or four months. This is resulting in lower import volumes, less freight to move and faltering industrial production. With the dollar still strengthening, export growth decelerated in the third quarter.”
Intermodal rail shipments fell 4.3 percent for the month compared to October 2014, but railcar loadings and intermodal were down 20.7 percent and 20.3 percent, respectively, from September.
“Rail has been hit particularly hard by the rapid drop in industrial commodities caused by the steady decline in industrial production,” noted Cass. “Coal, petroleum and ores were down, while grain was up. The reductions in energy production are being felt throughout the freight community as shipments of not only petroleum, but also pipe, water, sand and other drilling materials, have dropped off significantly.”
Compared to October 2014, overall shipment volumes dropped 5.3 percent in October after a 1.5 percent year-over-year decline in September.
Freight expenditures fell 8.7 percent in October, the third month-over-month decrease in the last four months. The lone exception was September, in which payments grew 2.4 percent in September after dropping 2.0 percent and 4.5 percent in August and July, respectively. Expenditures were down 2.2 percent in October compared with October 2015.
Cass attributed the decline in payments in part to the reduction in shipping volumes, but also to soft spot rates in the trucking sector caused by “abundant” capacity.
“Trucking companies are reporting that new contracts are yielding only 2-3 percent rate increases going into 2016,” said Cass. “Dedicated carriage contracts are faring slightly better for the carriers, with an average of a 3-4 percent rise in rates. Carriers are still reporting that they are unwilling to lose a good customer over a few percentage points.”
According to Cass, sluggish third quarter GDP growth – estimated at just a 1.5 percent annual rate compared to 3.9 percent in the second quarter – is a sign of mounting economic pressures caused by a strong U.S. dollar, which continues to make U.S. goods more expensive and less competitive abroad, and the weakening world economy. Consumer spending, however, is a lone bright spot in the overall health of the U.S. economy.
“In many ways this is the silver lining in the storm clouds, because it means that consumers are still in the game,” said Cass. “Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew 3.2 percent in the third quarter after expanding at a 3.6 percent pace in the second quarter.”
“Consumer spending has been bolstered by low inflation, especially with fuel prices; improving jobs creation; and stronger household purchasing power,” it added. “In October, the Labor Department reported that 271,000 jobs were added and the unemployment rate dipped to 5 percent. A report from the Labor Department showed new applications for unemployment benefits last week hovering near levels last seen in late 1973.
“Growth in durable goods spending (for long-lasting items such as washing machines and automobiles) continued strong, rising 6.7% in the third quarter. Inventory levels remain a looming problem as the Federal Reserve has been actively hinting that an interest rate hike is very possible in December. The combination of record inventory levels and an interest rate increase will cause a significant hike in inventory carrying costs.
“This will most likely drive a drawdown much like the one we saw in 2009 and 2010. Expect freight to continue to trail off through year’s end. Retailers and wholesalers have ample supply for the holiday season, so imports and freight shipments should not strengthen considerably.”
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 volumes fall to lowest October level since 2011
