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October sees freight rates rise as number of available loads dropped

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October sees freight rates rise as number of available loads dropped
Tim Denoyer, ACT Research’s vice president and senior analyst, said the "bottoming process" of the U.S. freight market is beginning, and this month's report focuses on the key question of how much further spot rates can decline, as well as concerns about diesel shortages, which could hasten the process.

The number of shipments available for haulage has declined but is still better than last year, while the amount shippers are paying for shipments is much higher. So says the October Cass Freight Indexes for Shipments and Expenditures.

According to the Cass Indexes, freight shipments declined by 2.9% in September from August levels but were still 4.8% ahead of September 2021 — and even further ahead (by 5.4%) of shipment numbers in September 2020.

Expenditures (the amount shippers paid to move that freight) grew by a smidgen in September, just 0.3%. Compared with September 2021, however, the spending was 21.2% ahead, and it was 60.2% ahead of September 2020.

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It’s important to note that the Cass indexes measure freight movements in multiple modes of transportation and derive its data from payments processed for Cass clients. Trucking is the largest in number of the modes measured, but other methods of freight movement, including rail, ship, air and pipeline, are also included in the totals.

One Cass statistic that’s specific to trucking is the Cass Truckload Linehaul Index, which incorporates linehaul shipping rates from both the spot and contract markets. In September, the index declined by 2.2% from August numbers but remained 3.9% ahead of the September 2021 index, and 17.1% ahead of September 2020. Since both spot and contract rates are calculated, it is the spot rates pushing the decline. However, contract rates are beginning to decline as well — which doesn’t bode well for future months.

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Another report issued in October is the U.S. Bank Freight Payment Index, which accumulates data from actual freight payments transacted through the bank’s services; this index includes both truckload and less-than-truckload data.

According to the U.S. Bank index, shipments declined by 2.9% in the third quarter of 2022, which ended Sept. 30. Compared with the same quarter of 2021, shipments declined 4.9%. That’s the largest quarterly drop since the first quarter of 2021.

The U.S. Bank index also reported a decline in shipping spending, which is down 2.4% compared with the second quarter.

Those looking for good news about shipment levels might look to the American Trucking Associations’ (ATA’s) For-Hire Truck Tonnage Index, which showed an increase of 0.5% in September after a strong 2.1% in August. For the third quarter of 2022, ATA reported a 5.6% increase over the same quarter of 2021.

It’s important to note that the ATA index is comprised of data submitted by its member carriers, which tend to be larger in size and dependent on a large percentage of contract freight loads. Contract rates are generally slower to respond to economic factors than spot rates.

“The latest gain put tonnage at the highest level since August 2019 and the third highest level on record,” said Bob Costello, ATA’s chief economist. “This is another example of how the contract freight market remains strong despite weakness in the spot market this year.”

Of course, inflation is driving much of what’s happening in the freight world. With less buying power, consumers are focusing their dollars on gasoline and groceries, and have little left over for home improvements, appliances and other durable goods.

The Fed has tried to rein in inflation with three interest rate hikes of 75 points (0.75%), resulting in mortgage interest rates not seen in years. According to a recent State of Freight release by industry forecasters FTR Intelligence, home mortgage rates reached 6.7% at the start of October, their highest point since July 2007. Sales of both existing and new homes have fallen in six of the past seven months.

ACT Research’s North American Commercial Vehicle Outlook forecasts the future of the industry and includes a great deal of economic data. According to the report, increasing wages are driving inflation rates, and will continue to do so for the foreseeable future.

In the report, ACT President and Senior Analyst Kenny Vieth said, “Employment metrics suggest there is little room to rein in wage inflation outside of aggressive monetary policy actions that reduce demand. Job growth is moderating, but September’s job gains were still 38% above the 2011-2019 average of 190k jobs per month.”

Since the law of supply and demand applies to labor as well as to products, when workers are more difficult to source, as they are in periods of low unemployment, wages tend to move upward. If the Fed is successful in slowing the economy, lowered demand for products could also result in less demand for labor, helping to stabilize wages. But consumers are still spending, Vieth noted, and businesses drive the demand for labor in response.

Vieth also expressed concern that the Fed’s approach to curtailing inflation could actually be too strong and have a negative effect.

“We note that we are already starting to see some commentary arguing the Federal Reserve is moving monetary policy too fast, thereby increasing the likelihood of an overshoot that leads to a recession,” he said.

In the ever-confusing world of economics, too much inflation is bad — but so is no inflation or, in severe cases, deflation, which is a contraction of the economy. The last time annual average inflation in the U.S. actually went negative was in 1954 in response to stock market corrections. The most famous, at least in the past century, would have been the three years following the stock market crash of 1929, when the economy shrank a total of 26%. Even in the recession year of 2008, the inflation rate remained in positive territory at 0.8%.

The Fed’s target inflation rate is 2%. As of September, the U.S. inflation rate is 8.7% for the year. In 1980, as Jimmy Carter’s presidency wound down, the inflation rate reached 12.5% and the Fed Funds rate (the amount banks of interest banks paid to borrow from the government) was an incredible 18%.

It’s doubtful the Fed will need to resort to rates that drastic for this inflationary round, but if they slow the economy too much, it will definitely show up in freight rates and volumes.

Cliff Abbott

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.

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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.
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