Freight Cycle Downshifts
According to Cass Information Systems’ data, freight markets cooled in April. In research released recently by the payments management company, “the possibility of freight recession is now serious.” The reduction was driven by broad inflation, which included rising diesel prices, which affect the cost of everything shipping, interest rate hikes, and a shift in consumer purchasing habits from products to services.
Freight shipments fell 0.5 percent year over year in April, but a 3.5 percent drop from March (seasonally adjusted) is more likely to capture industry participants’ attention. “More weakness is on the horizon,” according to the research, as companies tighten in the coming months and the impact of China’s production shutdowns is felt.
“The freight cycle has downshifted with a thud after a nearly two-year cycle of soaring freight volumes,” said Tim Denoyer of ACT Research. It’s possible that the April figures include some indirect effects from China’s lockdowns, but with container ship backlogs continuing off North American ports, direct repercussions on finished product imports appear to be more likely in the June/July timeframe.
Small Trucking Fleets and Owner Operators engaging in the spot market, on the other hand, are likely to be hit worse. Last year, a number of drivers got independent operating permission, purchasing equipment at record-high prices to pursue record-high spot fees. The additional capacity, along with a recent weakening in freight demand, has harmed spot market fundamentals, making it considerably more difficult for small operators operating offload boards.
April 2022 y/y 2-year m/m m/m (SA)
Shipments -0.5% 27.0% -2.6% -3.5%
Expenditures 30.6% 89.6% 0.2% -2.0%
TL Linehaul Index 14.1% 28.9% 2.3%
NM. Table: Cass Information Systems. SA (seasonally adjusted)
Freight Costs Are Not Impacted Though
Freight costs haven’t budged, however, Cass’ expenditures subindex rose 0.2 percent sequentially from a March peak. The dataset’s movement, however, was worse than normal seasonal patterns, falling 2% seasonally adjusted. The month-over-month change was hampered by a drop in shipments.
The month’s sideways movement provides little respite to shippers. The expenditures index was 30.6 percent greater than a year ago, and 90 percent higher than in the early days of the pandemic (April 2020). The index rose 38% last year and is expected to rise 24% in 2022, provided normal seasonal trends continue throughout the year.
Inferred rates (expenditures divided by shipments) increased 31.3 percent year over year and were 1.5 percent higher seasonally adjusted from March. The dataset has reached a new high, but rising fuel surcharges are distorting the numbers.
According to the research, substantial deceleration in the following six months is possible. Professional Truck Driver availability has improved significantly in 2022, while freight demand has slowed. Though it will take several months for the spot market to filter into contract rates, this is a deflationary combination.”
New COVID variants or a worsening of the chip shortage, which would further restrain Class 8 truck manufacturing, are also risks to the call that capacity will loosen further.
Chart: (SONAR: NTIL.USA, VCRPM1.USA).
The National Truckload Index (linehaul only – NTIL) is based on an average of booked spot dry van loads from spot market transactions and is colored in blue. The NTIL is a seven-day moving average of linehaul spot fares that do not include fuel.
The green line shows the average seven-day per-mile rate for dry van contract loads without fuel (reported on a 14-day lag).
Due to a clogged rail system, freight that would normally go via intermodal has been forced onto trucks. The index is being inflated by incremental expenses and extra mileage connected with the modal shift. 250,000 lanes, 10,000 per day excess mileage, and accessorial fees, in addition to increasing fuel prices, are supporting inferred rates.
Denoyer feels that the true cost of carrying freight is somewhere between the inferred rate dataset
(+31%) and the truckload linehaul index (+14.1% year over year). The linehaul index touched a record high in April, up 2.3 percent from March.
“Normal contract timing would suggest that [the TL linehaul] index might rise for a bit longer after spot prices peak, but the clock is ticking,” Denoyer said. “While this will be welcome news to some, such as shippers and people concerned about broader inflation, it is a signal for fleets to prepare for the worst. These trends strongly suggest freight rate deflation is in the future, not stagflation.”
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Written by: Fr8 World Logi$tix.