Rates red-hot in August, shipments high but capacity constrained

Inferred rates, or expenditures divided by shipments, advanced 6.1% sequentially (seasonally adjusted) in August. The index was up 26.6% year-over-year to the highest reading on record.

A change in mode to favor higher-priced trucking drove “a good bit” of the move higher but “broad and material increases” were seen across multiple modes. The average increases for the index over the last six months total 15% and assuming normal seasonality going forward, the index will be up 20% compared to last year.

Cass’ truckload linehaul index, which records changes in per-mile TL linehaul rates excluding fuel and assessorials, increased 12.6% year-over-year, almost 8% higher than the 2019 level. This was the second-highest index reading (only to May of this year) since Cass started tracking the data in 2005.

Further, Denoyer warned shippers that increases in the index are actually being suppressed by mix and capacity issues.

“This series has been under some pressure from longer-haul mix related to the chassis shortage and intermodal network congestion in recent months, so we would again caution shippers not to get too excited and carriers not to worry too much. This mix issue is noise, not signal, and the dampening effect on the index is considerable.”

The index saw shipment length of haul increase 5% sequentially (20% year-over-year). Longer lengths of haul place downward pressure on per-mile trucking rates.

Denoyer said more imports are being transloaded to trucks given congestion issues on the West Coast as well as slower rail service, which is increasing shipment distances. He believes “underlying truckload rates are up more in the 15%-20% range.”

TL spot rates continue to step higher as supply constraints expand. Contract rates, which lag spot market activity by one to two quarters, are following suit. It appears likely that TL contract rates will shake out 15%-plus higher year-over-year in 2020 and the early indications suggest contract rates will be up again in 2022.

Shipments limited by capacity headwinds, trucking taking share

The shipments index increased 12.3% year-over-year, up 5% sequentially on a seasonally adjusted basis. After sliding the last two months, “amid further slowdowns in rail volumes,” the index is back to the 2021 highs recorded during the May-June period.

“Trucking is picking up slack from the railroads, currently snarled by the chassis shortage,” Denoyer added.

He said overall freight volumes remain pressured by capacity limitations, including limited ocean shipping schedules, port congestion and delays on the rails.

“The extent to which constraints on equipment and driver supply ease in the coming months will largely dictate volumes, with declines likely to continue in intermodal and more pressure on trucking to shoulder the load,” he said.

The forecast is for shipments to see growth slow to the mid-single-digit range as the year comes to a close. Tougher prior-year comps from an economic snapback in the latter part of 2020 are also a reason for the cooling.

Limited chassis production will keep the nation’s intermodal network slowed for the next six to nine months, Denoyer sees. He expects a gradual return of truck capacity as drivers come back into the fold.

“Freight demand fundamentals remain strong, based on a strong U.S. consumer balance sheet, inventory restocking and an industrial sector struggling to grow into record orders with infrastructure stimulus likely on the way, Denoyer concluded. “But the dynamics of tight supply and exceptionally strong demand which have characterized the past year or so will not last indefinitely. The chip shortage continues to be a key fulcrum on which much in the world economy depends.”

Data used in the Cass indexes is derived from freight bills paid by Cass, a provider of payment management solutions. Cass processes $26 billion in freight payables on behalf of more than 8,000 subscribers annually.