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January Cass Freight Index shows decline in shipment volumes, freight expenditures

Although GDP figures for the second half of 2013 indicate that the economy is strengthening, this has not yet translated to the transportation sector. In January, weather hampered production as well as deliveries.

The Trucker News Services

2/7/2014

The Cass Freight Index Report for January showed North American shipment volumes and freight expenditures both continued the decline that began in December after the economy abruptly reversed direction near the end of last year.

Although GDP figures for the second half of 2013 indicate that the economy is strengthening, this has not yet translated to the transportation sector. In January, weather hampered production as well as deliveries.

The number of shipments dropped 3.6 percent from December 2013, and was 2.0 percent lower than a year ago. Freight shipment volumes follow a predictable trend. January sees a post-holiday drop-off and is also the slowest month of the year. Volumes rise throughout the spring, flatten or even drop during the summer months, peak in August-September, then fall close to the levels at which the year started. This year begins the same, with January shipment levels the lowest since 2010.

Railroad carload and intermodal loadings – good barometers of the volume of freight moving – have trended down in the last three months. Snowy January weather contributed to the depressed figures. That being said, many of January’s other indicators do not point to a quick turnaround next month:

• The Institute for Supply Management’s PMI fell for a second month from 56.5 in December to 51.3 in January. (Keep in mind that anything below 50 indicates that the industrial economy is contracting.)

• Of further concern is the 13.2 point drop in the New Orders Index, the largest drop in new orders in 33 years. Along with the drop in new orders, the backlog of orders shrank as well.

• The PMI Production Index was down 6.9 points, the second drop in a row.

• Looking farther down the supply chain, China’s PMI also declined and now sits at 50.5, just 0.5 points above the 50 point mark indicating growth or contraction.

• New export orders fell from 49.8 to 49.3. U.S. imports have been slowing considerably, another positive for GDP calculation, but not a positive for the freight industry.

• Bad weather has continued into February and may foreshadow a stormy February for freight shipments.

Inventory levels are not contracting. This is good for the GDP calculation, but not so good for those holding the inventory or the transportation sector.

Freight spending dropped 5.1 percent in January. Much of the decrease can be attributed to the 3.6 percent decline in the number of shipments. Compared to this time last year, freight expenditures are up 1.4 percent.

Movements in our freight expenditures index have been stronger than those for shipment volumes, indicating that there has been very modest growth in rates. The trucking sector is still unable to push rates up significantly, while the railroads have made more headway.

Many industry observers believe that the economy will gain momentum and that 2014 will be much stronger than last year. There are still some strong headwinds to overcome in the freight sector, the most obvious of which being the nearly imperceptible growth in volumes. The global marketplace remains weak, so our exports are lagging expectations.

While the unemployment level continues to fall, the level of new jobs created each month is not enough to sustain the economy. As the Federal Reserve reduces its bond purchases, interest rates will continue to rise. This will have repercussions in the freight sector. The inventory levels that are now higher than those during 2009, when carrying costs were minimal, will become more burdensome and will probably lead to a drawdown similar to what we saw during the recession.

Trucking capacity is at exactly the right level for the volume of freight we have today, but will become inadequate later this year if the predictions of a robust 2014 materialize. Obtaining credit to purchase new vehicles will become more difficult, probably squeezing out smaller and marginal trucking companies that don’t have the capital to expand their fleet or — almost as important — modernize their fleets. Continue to expect a bumpy ride.

The Trucker staff can be reached to comment on this article at editor@thetrucker.com.

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