Cass Freight Index Report. December 2013 & Year in Review

Transcription

1 Cass Freight Index Report December 2013 & Year in Review

2 Cass Freight Index Report Dec 2013 & Year in Review Freight Shipment Activity Ends Down in 2013, But Average Shipment Size Continues to Grow Yearover year change Monthtomonth change Dec 2013 Shipments % 6.2% Expenditures % North American freight activity followed virtually the same path in 2013 as it did in the previous two years, concluding with the typical December falloff. The climate for freight was mediocre throughout 2013, with the average number of monthly freight shipments 0.7 lower than in Inventories remained high, manufacturing stalled mid year, and exports and imports were relatively flat for most of the year. All of this contributed to another bumpy year in the recovery that hasn t quite gotten there. December Shipment Volumes Freight volumes in North America plummeted 6.2 percent from November to December, making this the largest monthly drop in 2013 and the third straight monthly decline. December shipment levels were 3.2 percent lower

3 than in December 2012 and 1.8 percent lower than Despite the fact that there were fewer shipments in 2013, other indicators, such as the American Trucking Association s Truck Tonnage Index, have shown that loads have been getting heavier. This matches well with anecdotal evidence from LTL carriers that they are carrying fuller loads. And since the Cass Freight Index does not capture a representative picture of the small parcel sector of the industry, the steep downward freight movement in December was somewhat offset by the increase in small package shipping for the holidays. The National Retail Federation reported that Thanksgiving/Black Friday sales fell 2.7 percent, the first drop in seven years. Holiday retail sales were much weaker than in 2012, which was much weaker than Meanwhile, inventories have continued to grow. A bright point for small package carriers, however, is that online sales were at record highs. With 36.8 million items ordered from Amazon.com on Cyber Monday, the company had to limit signups for its Amazon Prime service so that it could honor its shipping guarantees to existing members. This staggering order volume came at the rate of 426 items per second. December Freight Expenditures Freight expenditures dropped 5.4 percent from November against the shipment drop of 6.2 percent. Total freight expenditures generally moved up and down with freight volumes like this throughout the year. From a year ago, expenditures were up 1 percent against 3.2 percent fewer shipments. Given that rates for most modes remained largely unchanged in 2013, these numbers support other data that the average shipment was larger and therefore more expensive. Our point about the index not containing a truly representative picture of small package shipments applies to total expenditures as well. If all parcel shipping were included, the true December drop in freight spending would be somewhat less in Review While 2013 was a complicated year from a purely economic point of view, the major events contributing to this had very little impact on freight. As we have experienced for several years now, the first quarter came on strong, then we muddled our way through the rest of the year and entered the following year just slightly above where we were the previous January. Freight shipment volumes experienced five three year lows during 2013, while freight expenditures hit eight three year highs. Unemployment fell, yet the number of new jobs created averaged below The number of workers leaving the labor pool has reached near historic highs. The Congressional budget stand off in the fall led to a shutdown that forced 800,000 federal workers, and even more contractors, off the job. It has been estimated that the shutdown slowed economic growth in the fourth quarter (the numbers are not in yet), from the strong third quarter showing of 4.1 percent. Even the factors that contributed to the much improved third quarter GDP did not translate to increased freight. Increased inventory investment, a deceleration in imports, and strengthened state and local government spending were the strongest upward drivers of third quarter GDP. The first two do not drive shipping activity. Additionally, exports fell in the third quarter and the housing market, which was stronger in 2013, slowed in the

4 fourth quarter. New starts lagged well behind permits issued, and new construction is what will lead to increased freight. Manufacturing gained strength for most of the year but at a very modest rate. Although better than 2012, which included several months of contraction, 2013 was still well below pre recession production levels. The Institute for Supply Chain Management s average PMI in 2013 was 53.9 not much higher than January s starting point of The PMI was lower in December, falling from 57.3 to Production fell 0.6 percentage points, but new orders rose by the same amount. Order backlog contracted 2.5 percentage points, largely due to the 4.5 percentage point drop in new export orders. Looking forward to 2014 there are some hurdles, but the freight picture should strengthen as the year progresses. Congress is ahead of the budget issue which had been kicked down the road in November so another shutdown is unlikely. Transportation employment, especially in trucking, has been rising in recent months. Globally, new orders are up, but more for exports to developing countries than to the U.S. or Europe. The market for U.S. goods should strengthen by the second half. The Federal Reserve will begin tapering its quantitative easing strategy in January, which will effectively push interest rates up. This could put a strain on trucking companies purchases of new trucks. But if the economy grows as expected in 2014, it is imperative that new trucks be added to the fleet in quantities greater than those needed to simply replace those being retired. The high inventory levels are going to be drawn down in 2014, if for no other reason the fact that higher interest rates are going to make them more costly to carry. Consumers still hold the key to completing the recovery, and there are few signs that they feel confident to resume old spending habits. The lower labor participation rate plays a big role in the amount of disposable income available for anything but necessities. Many are finding that as their unemployment benefits end they still have few job prospects, so they are joining the ranks of those who are not actively in the labor market. My prediction is that freight growth will still be measurably stronger in 2014 (albeit slow and uneven). Volumes will be up consistently for several months, putting pressure on capacity before we see a rise in rates. The virtual rate freeze that has existed for almost three years should thaw and give way to higher freight expenditures by the second half of the year due to higher costs and volumes. Other indexes published by Cass: Cass Truckload Linehaul Index measures fluctuations in U.S. truckload linehaul rates Cass Intermodal Price Index measures fluctuations in U.S. domestic intermodal costs Cass/INTTRA Ocean Freight Indexes measures fluctuations in U.S. import and export container volumes Visit to view or subscribe.

5 About The Cass Freight Index The Cass Freight Index represents monthly levels of shipment activity, in terms of volume of shipments and expenditures for freight shipments. Cass Information Systems processes more than $22 billion in annual freight payables on behalf of its clients. The Cass Freight Index is based upon the domestic freight shipments of hundreds of Cass clients representing a broad spectrum of industries. The index uses January 1990 as its base month. Visit or call to get detailed information about the Cass Freight Index, including historical data. About Rosalyn Wilson and Delcan Corporation Analysis provided by Rosalyn Wilson, a nationally and internationally recognized supply chain expert, and senior business analyst with Delcan Corporation based in Vienna, Virginia. She has more than 30 years of experience in the transportation and logistics field and is the author of the Annual State of Logistics Report, a widely used analysis of the supply chain industry published by the Council of Supply Chain Management Professionals a report which was created in 1988 by the late Robert V. Delaney, a former Cass executive. She is also the co author of Securing Global Transportation Networks, a supply chain security reference and college textbook. Delcan Corporation is a management consulting firm recognized by those in government and industry as a world leader in the transportation sector. Delcan advises top decision makers in the transportation sector on strategy, technology, program and project management, asset management, and finance and economics. The material contained herein is intended as general industry commentary. The Cass Freight Index and other content ( Index ) is based upon information that we consider reliable, but Cass does not guarantee the accuracy, timeliness, reliability, continued availability or completeness of any information or underlying assumptions, and Cass shall have no liability for any errors, omissions or interruptions. Any data on past performance contained in the index is no guarantee as to future performance. The Index is not intended to predict actual results, and no assurances are given with respect thereto. Cass makes no warranty, express or implied. Opinions expressed herein as to the Index are those of Rosalyn Wilson and may differ from those of Cass Information Systems Inc. All opinions and estimates are given as of the date hereof and are subject to change Cass Information Systems, Inc.