Freight expenditures surged in June, according to data provided by Cass Information Systems (NASDAQ: CASS) on Monday.
The expenditures component of the Cass Freight Index increased 56.4% year-over-year and was 11% higher than the May reading (9.4% higher sequentially on a seasonally adjusted basis). The month marked the fastest year-over-year growth rate on record for the subindex, besting the near-50% increase logged in May.
While the comparisons are distorted by a precipitous drop in demand due to widespread COVID-related lockdowns during the same period in 2020, the latest reading on freight rates was up against “a slightly tougher comparison” than in May, Tim Denoyer of ACT Research explained.
He did note that the year-over-year comps step higher moving forward.
FreightWaves data measuring tender rejections remains at elevated levels with nearly one out of every four loads under contract being rejected by carriers. The proxy for truck capacity and subsequently rates is about to lap the year-ago mark when the market began tightening as parts of the economy reopened.
With the current truck market in an oversold condition as the industry grapples with a lack of drivers and equipment, the runway for high rates appears likely to continue.
“Tougher comparisons in the coming months will naturally slow these y/y increases, but extraordinary growth rates will continue in the near term, driven by increases in both shipment volumes and freight rates,” Denoyer stated.
TL Linehaul Index
Table: Cass Information Systems. SA (seasonally adjusted)
Implied freight rates, expenditures divided by shipments, increased 23.4% year-over-year in June, more than twice the growth rate recorded in May. Implied rates were up a seasonally adjusted 12.3% sequentially in June, more than offsetting May’s 7.8% decline.
“This result confirms that the accelerating trend remained intact through Q2, but the volatility in May and June was partly due to modal mix,” Denoyer said. “The proportion of smaller/lower-cost LTL shipments in the dataset rose in May, then returned to a more normal level in June, and this mix shift pressed total embedded rates higher in June just as it pressed the series lower in May.”
The strength in freight pricing was seen across all modes. Truckload represents more than half of the dataset.
TL rates just off all-time high
The TL linehaul data showed a 0.4% dip from the all-time high established in May. The slight decline snapped a streak of 11 months of sequential increases. However, the report points to an increase in length of haul “rather than any softness in rate trends” as the reason for the decline as more imported freight is being transloaded by truck from the West Coast to the Midwest given rail service headwinds.
On a year-over-year comparison, the index was up 14.5%.
Denoyer expects the linehaul index to move higher in the near term given high demand and capacity constraints but noted that “capacity is beginning to accelerate as drivers respond to higher pay and parts constraints begin to ease, which will change the trajectory of truckload rates.”
Shipments remain robust
The shipments component of the index was up 26.8% year-over-year but down 4.2% on a seasonally adjusted comp from May.
“While still among the top 10 results in the past decade, the result indicates a little slower volume environment than May, which is consistent with several other broad freight measures, including rail volumes and spot truckloads,” stated Denoyer.
He said waning stimulus payments and supply constraints (drivers, trailers and chassis) are weighing on volumes.
Rail volumes, the second-largest component of the index, were 22% higher year-over-year in the second quarter compared to COVID-impacted conditions from a year ago. Denoyer expects rail traffic to see year-over-year growth in the high-single-digit range during the third quarter as the year-ago comp (-6%) remains accommodating.
“Even with material supply constraints, the freight cycle remains in high-growth mode, benefiting from a strong retail economy, tight inventories and a persistent backlog of container ships anchored in the San Pedro Bay,” Denoyer said. He believes the industrial sector will begin to catch up to broader demand as “record capital goods demand and likely infrastructure programs” play out.
He noted that the current capacity backdrop could begin to loosen as transportation payrolls expand and extended unemployment benefits have already expired in some states.
“The dynamics of tight supply and exceptionally strong demand, which have characterized the past year or so will not last indefinitely, and several of the indicators we monitor are auguring new trajectories,” Denoyer concluded. “As we like to say, the cure for high prices is high prices.”
Data used in the Cass indexes is derived from freight bills paid by Cass, a provider of payment management solutions. Cass processes $28 billion in freight payables on behalf of more than 8,000 subscribers annually.