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Truckload costs up while capacity remains tight

Truckload linehaul costs in June rose 1.5% year over year and 1.0% from May, very closely in line with seasonal trends, according to the Cass Truckload Linehaul Index. Truck tonnage continues to grow, as it did in all of 2012. This and a number of other factors, such as limited investment in new equipment and the hours of service law that went into effect on July 1, are keeping capacity tight.

The Cass Truckload Linehaul Index is a measure of market fluctuations in per-mile truckload linehaul rates, independent of additional cost components such as fuel and accessorials to provide an accurate reflection of trends in baseline truckload prices.
As the nation’s largest payer of freight bills, Cass manages more than $22 billion annually in freight spend, enabling Cass to compile meaningful logistics data that serves as an indicator of transportation industry trends. In addition to the Truckload Linehaul Index, Cass also publishes and Intermodal Price Index and Freight Index.

The June Intermodal Price Index shows that total intermodal costs are down 0.5% year over year. Taking a longer view, June’s intermodal costs are at virtually the same point as in June of 2011 and 2012. From May, intermodal costs fell 6.1% in line with seasonal trends.

“This decrease takes place despite the fact that intermodal container volumes continue to post considerable year-over-year growth. Other factors playing into the supply-demand-cost equation, are declining diesel prices (a new seasonal norm) and an increasing container supply,” according to the report.

The Cass Freight Index for June shows an increase in freight expenditures over May, while the number of shipments remained virtually flat. The transportation sector continues to follow the up and down track it’s been on for the last two and half years, according to the report.

The economy in general has exhibited more favorable trends in the last month, which should boost activity for the transportation industry over the next several months. Economic drives such as construction spending, factory orders (especially for durable goods), and consumer confidence all gained strength in May and June.

June shipments rose less than 0.1% from May and were 1.5% lower than this time last year. In fact, the June 2013 value is the lowest of the last three June time periods. The shipment trend for 2013 remains completely intertwined with those of 2011 and 2012. Cumulatively for 2013, the number of shipments is up 5.8%, but second quarter growth was much slower than first quarter growth.

The high point year‐to‐date was hit in March, with June coming in 0.6% lower than the March high. The railroad sector began and ended the last four weeks with drops in both carloadings and intermodal loadings, to end the period down 0.7% and 1.1% for carloadings and intermodal respectively. The trucking sector remains at high utilization rates with load size trending upward. Most truckers feel that shippers are still in control of pricing, but this could change quickly and soon. The American Trucking Association’s Truck Tonnage Index posted a 2.3% increase in May, which coincided with the strong 3.4% gain in number of shipments reported last month.

June freight payments were up 3.4% from May and 0.8% from the same period last year. The upward drift in expenditures has more to do with heavier loadings and the commodity mix than an upward trend in rates. Most carriers in all sectors have reported strong downward pressure on rates and competition in the intermodal arena remains strong.

“That being said, the hours of service (HOS) rules, which went into effect July 1st and will have the immediate effect of reducing the productivity of existing capacity by an average of 5%, could change all of that,” the report says. “If trucking capacity gets scarce, and it will, then the initial beneficiary will be intermodal loadings. As trucking rates rise, rates for other competitive modes – especially intermodal – will also increase.”

Most trucking companies are reporting high utilization without capacity in reserve; there is a current shortage of about 30,000 drivers; and new truck purchases have only covered replacement needs, not expanded capacity, according to the report.

“Projections are that the driver shortage could climb to 100,000 by year end, pushing up wages and benefits to attract and retain drivers,” the report says. “Given that we are already at or close to a 100% turnover rate for drivers, these labor costs could rise quickly as qualified drivers jump companies in search of better pay. Rail intermodal will serve as a pressure valve, absorbing more freight, but truck shortages will begin to manifest as we enter the traditional holiday shipping period, pushing up rates.”

The Cass Freight Index also analyzes the overall economic picture. “Despite the fact that the economy, both domestically and globally, shows no real signs of change other than more of the up and down movements we’ve been watching for close to three years, the transportation sector should experience some noticeable trends,” the report says. “These trends will probably be of the wobbly nature we have become accustomed to, but more pronounced. The impact of the new HOS rules will be felt in all sectors of the economy, as virtually all products are moved on a truck at some point.”

The Purchasing Managers’ Index for manufacturing inched back up 1.9% in June and returned to growing instead of contracting. Both production and new orders showed growth as well, but the backlog of orders continued to contract at an accelerated rate. Industrial production has stalled in 2013 and the manufacturing sector has seen three consecutive months of job declines.

“There is a marked slackening in global trade, with China reporting another month of declining production for exports and the European Union reaching its highest unemployment records,” the report says. “These and other indicators show that, at best, there should be a modest increase in volume shipped. The real story will be in expenditures for freight movement. Expect rapidly rising rates, with frequent adjustments to rapidly changing market conditions in various parts of the country and in various industry sectors.”

Cass partners with the securities analyst firm Avondale Partners LLC to publish the Indexes.

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