PHOTO: FLICKR – Ron Cogswell
The freight recession is over according to Donald Broughton, the author of the January 2017 Cass Freight Index report. He has some pretty compelling evidence to back up his claim too.
Jeff Berman, Group News Editor of Logistics Management Magazine, in his commentary on the report, writes:
“Many freight transportation and logistics executives and analysts consider the Cass Freight Index to be the most accurate barometer of freight volumes and market conditions, with many analysts noting that the Cass Freight Index sometimes leads the American trucking associations (ATA) tonnage index at turning points, which lends to the value of the Cass Freight Index.”
In other words we need to pay attention to what it reports!
Shipment Volume and Freight Expenditures Are Up
Both the shipment volume and expenditures indexes have turned positive. Shipment volume is at 1.005, a year-over-year increase of 3.2%. The expenditure index, a measure of how much money is spent on moving freight, is at 2.268, a year-over-year increase of 4.3%.
The 3.2% increase in January shipment volume strongly suggests that the first positive indication in October may indeed have been a change in trend. In fact the author, Donald Broughton, goes so far as to suggest that the October index, the first positive index in 20 months, was one of the first indications that a recovery in freight had begun in earnest.
We Consumers Are the Heroes
Consumers are playing a major role in leading the freight recovery. According to the University of Michigan consumers are much more optimistic. Their consumer sentiment index was 98.5 in January, an increase of 7.1% from January 2016. Leading economists expected a more conservative final reading of 98. This newfound optimism is translating into more spending.
According to the Commerce Department in their January 2017 monthly sales report, sales at US retail stores and restaurants increased 0.4% from the prior month’s to a seasonally adjusted $472.14 billion in January. Economists expected a much more modest 0.1% increase in overall retail sales. Total retail sales in January were up 5.6% from a year earlier.
It comes as no surprise that the big driver for rising volumes is e-commerce. Parcel volumes are continuing to show outstanding rates of growth, with both FedEx and UPS reporting strong US domestic volumes.
Air Freight Volumes Are Trending Up
According to the proprietary Avondale Partners index in December, air freight has also been showing strong, sequentially improving strength. The Asia Pacific Lane jumped 13.2% and the Europe Atlantic Lane grew 5.7%.
Imports Are Surging
The Wall Street Journal reports that imports have surged at US ports in January. The three factors responsible are:
- Increased consumer confidence
- Retailers restocking after the holiday
- The strong dollar
The ports of Los Angeles and Long Beach imported 714,413 loaded TEU’s, a 10.6% increase over the previous year and the strongest import performance since last year’s peak month of August. According to the research firm Panjiva, which tracks trade data, U.S.-bound ocean shipments increased 5% across all of the nation’s ports in January.
“It looks upbeat,” said trade economist Jock O’Connell. “We’re still seeing a modest amount of domestic economic growth in the U.S., generating demand for imported products, and the dollar continues to be strong,” he said. “The dollar can buy a lot of foreign goods.”
Even Railroads Are Seeing the Light at the End of the Tunnel
Railroads have seen persistent weakness for almost 2 years, with overall volumes being negative 92 out of the last 104 weeks. However the higher price of crude is driving increased activity in oil and gas exploration as companies with DUC’s (drilled but uncompleted wells) are choosing to proceed with fracking operations. These fracking operations appear to be in the early stages of leading the railroads out of their recession.
AAR reported that commodity carloads grew by 2.9% in January year on year and intermodal grew 11.2% in December and contracted slightly by 1.8% in January.
The Freight Recession Is Over
According to Donald Broughton:
“Data is suggesting that the consumer is finally starting to spend a little, and that with the surge in the price of crude (back above $50 in October), the industrial economy’s rate of deceleration first eased and then began a modest improvement led by the fracking of DUC’s (drilled but uncompleted wells), especially in the fields with a lower marginal production costs (i.e., Permian and Eagle Ford). How fast will the recovery be from here? That is yet to be seen. However, the overall freight recession which began in March 2015 appears to be over.”
I’m not cracking the champagne open yet but all the signs are supporting his assessment. I think it’s going to be a great 2017 for all of us in the logistics industry!
If you’re interested in learning how shipping by rail might better meet your freight transportation needs call New Mexico Transloading at 505 – 908 – 1911. We’d be delighted to have a conversation with you.