North American freight market shows continued growth in February

Shipment volumes for the month grew 7 percent from January and 1.9 percent from February 2016, according to the latest Cass Freight Index Report.

   The North American freight market showed continued growth in February 2017, with volumes registering the third year-over-year increase in as many months after slipping back into negative territory in November 2016, according to the latest Cass Freight Index Report.
   Shipment volumes in February grew 7 percent from the previous month and 1.9 percent compared with the same 2016 period following year-over-year increases of 3.2 percent in January and 3.5 percent in December 2016. The December increase followed a decline of 0.5 percent in November and October, in which shipment volumes stemmed a 20-month free fall, registering their first year-over-year growth since March 2015.
   Donald Broughton, an economist with Avondale Partners and author of the report, said the continued growth in the past three months suggests the October increase was more than just a blip on the radar.
   “The 1.9 percent year-over-year increase in the February Cass Shipments Index is yet another data point which strongly suggests that the first positive indication in October may have indeed been a change in trend,” said Broughton. “In fact, it now looks as if the October 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 in earnest.
   “Data is suggesting that the consumer is finally starting to spend a little. 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),” he added.
   Broughton noted that unlike in January, when shipments fell 6.4 percent from the previous month, the February sequential pattern looked very promising.
   “Since February is always one the weakest freight months for most modes of transportation (truck, rail and parcel), the sequential strength emboldens our view that the recovery is not a ‘flash in the pan’ but real,” he wrote. “We also continue to receive almost-daily reports of stronger shipment volume in all modes from both hard data sources and industry anecdotes.”
   Freight expenditures for the month also showed growth on both a sequential and year-over-year basis, up 3.2 percent compared with January and 5.1 percent from 2016 levels, only the second year-over-year increase in 22 months. Shipping payments in January grew 4.3 percent from the previous year after contracting 3.8 percent in September, 3.8 percent in October, 4.5 percent in November, and 3 percent in December.
   Broughton said the improvement came against a slightly tougher comparison in February 2016 than in January, when expenditures fell to a five-year low due to weak demand and a monumental drop in crude oil prices to below $30 a barrel. He said the continued growth can be attributed primarily to a steady rise in the price of fuel, as well as “some improvements” in pricing power of trucking and intermodal carriers.
   According to Broughton, a fundamental rule of marketplaces is that “volume leads growth,” meaning that shipment volumes generally increase in advance of pricing.
   “We have been questioning, ‘How fast will the recovery from here be?’” he said. “However, the overall freight recession, which began in March 2015, appears to be over and, more importantly, freight seems to be gaining momentum.”
   February volumes continued to be driven by “outstanding” growth in e-commerce parcel shipments, with FedEx and UPS reporting “strong” U.S. domestic volumes, the logistics payment solutions provider said.
   Airfreight volumes in January (the most recent month for which data is available) also continued to show improvement, up 8 percent in the Asia Pacific trade lane and 5.9 percent in the Europe Atlantic, following respective increases of 13.2 percent and 5.7 percent the previous month, according to Avondale’s proprietary air cargo index.
   Rail volumes in the last two years have contributed to the overall decline in the North American fright market, but have become “increasingly less bad,” and in recent weeks have actually turned slightly positive, albeit against a “very easy comparison,” said Broughton. According to data from the Association of American Railroads (AAR), U.S. Class I railroad traffic, which has fallen in 92 of the last 109 weeks, grew 5.3 percent for carload and 0.4 percent for intermodal in February after a 2.9 percent increase in January.
   U.S. rail volumes have suffered from a combination of declining prices for energy commodities like coal and oil, a strong U.S. dollar and weak domestic industrial production driving fewer exports, but the latest data “suggests that the higher price of crude (WTI $49 as we write this) is driving increased activity in oil and gas exploration, as companies with DUCs are choosing to proceed with fracking operations,” Broughton added.
   “Just as the dramatic drop in fracking led us into the industrial recession in March 2015, it now appears to be in the early stages of leading us out,” he said. “Bottom line, rails may not serve as a drag to the overall Cass Freight Shipments Index in coming months, but instead are starting to be a positive.”
   The trucking industry has provided mixed results of late, as tonnage seems to be growing, but loads have contracted in four of the last seven months, according to the report. In January, however, the American Trucking Associations (ATA) reported tonnage was up 3.2 percent, bringing the three-month moving average growth rate to 1.6 percent.
   “The bottom line: after being a source for concern for many months, trucking industry data appears to be getting better and gaining momentum,” said Broughton.
   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.