Shipment volumes for the month slid 1.7 percent from December, but were up 12.5 percent compared with January 2017, while expenditures fell 1.8 percent sequentially, but rose 14.2 percent year-over-year, according to the latest Cass Freight Index Report.
The North American freight market continued to show “increasingly positive” growth in January 2018, according to the latest Cass Freight Index Report.
Shipment volumes and expenditures extended a run of year-over-year increases that began 16 and 13 months ago, respectively, with volumes up 12.5 percent and spending up 14.2 percent compared with January 2017.
On a sequential basis, shipment volumes slipped 1.7 percent and expenditures fell 1.8 percent compared with the previous month.
Donald Broughton, founder and managing partner of Broughton Capital and author of the report, said the continued growth of shipments in January “is yet another data point which confirms that the U.S. economy is strong and getting stronger.”
Broughton noted that the year-over-year percentage change is that much more significant because the recovery in shipping began in the second half of 2016, meaning the January 2018 growth figure comes against a tougher comparison and “only when comparisons were weak (i.e. 2009-2010) were the percentage increases so high.”
“Volume has continued to grow at such a pace that capacity in most modes has become extraordinary tight,” he added. “Pricing power has erupted in those modes to levels that spark overall inflationary concerns in the broader economy.”
“[The] overall freight recession, which began in March 2015, appears to be over and, more importantly, freight seems to be gaining momentum in most segments,” said Broughton.
In terms of expenditures, Broughton said the Cass index had been posting larger and larger year-over-year increases in 2017 and, like with shipment volumes, the January 2018 comparison was not an easy one.
“We have commented repeatedly that this was indictive of an economy that is continuing to expand,” he wrote. “January’s 14.2 percent increase clearly signals that capacity is tight, demand is strong, and shippers are willing to pay up for services to get goods picked up and delivered in modes throughout the transportation industry.”
Freight spending turned positive on a year-over-year basis for the first time in 22 months in January 2017, although Broughton noted this was against an easy comparison, as the index in January 2016 reached lows not seen since 2011, when the U.S. economy was still rebounding from the Great Recession.
Broughton attributed the continued growth in part to a steady increase in the price of fuel and the associated carrier surcharges, but said that the increase attributable to fuel is now diminishing and trucking and intermodal carriers are beginning to gain pricing power independent of oil prices.
He also noted the deluge of parcel volumes associated with online retail consumption, but said the current strength of the freight market can be attributed to more than just the ongoing growth of e-commerce.
According to the report, most modes have not made sufficient investments in capacity and infrastructure in the past few years, meaning capacity has remained relatively steady while demand has increased.
Even so, Broughton said the continued growth is “much more of a demand story” than one of tight capacity.
The two primary factors leading to increased demand, according to Broughton, are the strengthening of the industrial economy and the consumer economy.
“Simply put, industrial activity is alive and well, and accelerating strongly,” he wrote. “The recent changes to [U.S. federal] tax law and the ability to accelerate depreciation should only serve to further strengthen the capital-intensive industrial economy.”
The U.S. Tax and Jobs Act, signed into law by President Donald Trump in December, cuts the effective federal tax rate for corporations from 35 percent to 21 percent.
In the consumer economy, Broughton said there hasn’t been a true “recovery” in income and spending growth since 2009, but that the millennial generation, who outnumber their baby boomer parents, has “begun to prove the critics wrong” by getting married and purchasing their first homes.
“Millennials have started to form households, and thus have started the goods accumulation phase of their lives as well,” he said. “Consumer spending is poised to be strong for the foreseeable future, and the recent appearance of some wage inflation only emboldens our view on this.”
North American freight market ‘increasingly positive’ in January
