Shipments declined by 3.2% in January from December levels, but no more than they usually do, according to the latest Cass Freight Index for Shipments, part of a monthly report issued by Cass Information Systems. The Cass report called the January results “better than expected” and credited mild weather, along with improved auto production, for the results.
The index rose 4.3% from January 2022 levels; however, COVID was rampant at that time and shipment levels were depressed.
Cass Indexes are compiled from customer data and cover multiple modes of transportation, including truck, rail, pipeline, ship and air.
The Cass Truckload Linehaul Index, which the company refers to as a “broad market indicator,” fell by 0.9% from December and was down 5.6% from January 2022. That’s an indication of spot rates that fell last year and contract rates that are still declining. The report noted, “With spot rates already down significantly, the larger contract market is likely to continue adjusting down more gradually but in the same direction.”
The Cass report, which includes comments by ACT Research Vice President and Senior Analyst Tim Denoyer, predicted a mild setback for freight volumes: “Although LTL and intermodal volumes are down significantly, outperformance in truckload volumes shows the freight downturn is still likely to be mild overall. We believe an accelerated bottoming process has begun in the freight rate cycle, with spot rates further below operating costs than ever before.”
As the Cass report was coming out, ACT Research released its own analysis, using their For-Hire Trucking Index. Tim Denoyer commented on this report too, saying, “We’re now nine months into this freight volume soft patch with lower goods spending, overstocked retail and declining imports. The good news is that from a historical perspective, that means we’re closer to the end than the start.”
Denoyer noted that in 2022 the power to set rates shifted to shippers as freight levels remained stagnant and the industry’s capacity continued to grow. As noted in the truck sales story on Page 19, carriers continue ordering both trucks and trailers at a brisk pace, anticipating profitable conditions in the market despite lowered rates. It may seem difficult to believe, but freight rates coming out of the COVID slowdown were so good that, even after declining, conditions are still good for profitability.
“With capacity starting to slow and demand to recover eventually, the market should begin to rebalance in the not-too-distant future,” Denoyer said.
Another release by ACT Research on Feb. 13 was even more optimistic. Entitled, “Best Recession Ever for Class 8 Trucking,” the report quoted from ACT’s latest “North American Commercial Vehicle OUTLOOK.”
“We continue to expect a recession in the first half of this year leading to an incremental year-over-year decline in 2023 Class 8 build from 2022 as freight market weakness increasingly weighs on demand into the year’s second half,” said ACT President and Senior Analyst Kenny Vieth. He noted that rising interest rates probably won’t be high enough to impact truck buying.
The typical freight-truck cycle is expected to enter a new phase in the second half of the year as truck production falls off. If the recession is short-lived, freight availability will increase as capacity, the number of trucks available to haul freight, tightens. At that point, rates will begin rising again.
Dean Croke of DAT, in an interview with The Trucker, said he also feels that market is nearing bottom. His reasoning comes from the gap between contract and spot rates, which DAT measures and reports on. That gap has been shrinking, with contract rates continuing to decline to a point closer to spot rates. When an inversion occurs, when spot rates become higher than contract rates, it usually indicates a bottoming of the market.
“At some point in the middle of the year, you could expect an inversion, maybe certainly in the second half of the year, so it looks like from a just a national average rate perspective that we we’ve reached the bottom link,” Croke said.
Of course, no estimate of freight markets is complete without information about fuel pricing. According to the U.S. Energy Information Administration, the national average price for a gallon of diesel fuel was $4.44 as of this writing. That’s down considerably from the $5.23 per gallon price during the week of Thanksgiving in November 2022, but still higher than pre-COVID pricing. Further declines would certainly be welcome news by the trucking industry.
Croke, however, thinks the demand for crude is bound to rise, causing price increases to levels we haven’t seen yet.
“China is the second largest economy in the world and the largest importer of crude, and that economy is not open yet,” he said. “So, when it opens up fully, and the expectation is that you’d have to think that’ll put a drag on global crude supplies over the summer, and that could see diesel prices increase again.”
While a mild recession might be welcome news and there’s a chance that freight rates will begin increasing, rising fuel costs could put a damper on the enthusiasm. It could be a twist on a classic saying — “one step forward, one step back.”
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.