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June Freight Shipments Drop 4% – Recession Indicator?

According to information released by Cass Information Systems on Wednesday, freight shipments decreased 4.1 percent sequentially in June, undoing all of May’s gains. The monthly volumes data set declined for the fourth time in the first half of 2022 when compared year over year.

The Cass Freight Index provides an accurate statistical representation of all modes of domestic freight transportation. It is based on 37 million invoices and $37 billion in spending for a diverse group of clients ranging from $40 million to over $2 billion in annual revenue. Cass has been a leading provider of shipping data and analysis since 1989. The Index covers all freight modes and analyzes the freight market’s current state.

In June, the Cass Freight Index moderated along with macroeconomic data points. As the second half of 2022 gets underway, the consumer spending market is showing signs of cooling up, and inflation has reached new highs (9.1 percent annualized, according to June statistics provided by the Bureau of Labor Statistics on Wednesday).

Throughout the epidemic, several retailers chased inventory, frequently advancing product spending well ahead of customer buying patterns to prevent supply chain bottlenecks and, eventually, stockouts. The trend has suddenly reversed itself, with a few major retailers warning of margin pressure because they are carrying excess inventory or product that is out of season.

Tim Denoyer of ACT Research wrote in the June Cass report that inventory “has gone from a huge tailwind for freight demand to more of a neutral component today, with potential to become a significant headwind if goods demand continues to drop.”

Following a 2.7 percent decrease in May, Cass announced that the shipments index fell 2.3 percent y/y in the month. The index was still 23.9 percent higher than the level recorded two years ago and 1.9 percent higher than June of 2019, even though it has continued to moderate from 2021 levels.

The prediction for the shipments index is for y/y decreases of 1% in the third quarter and 5% in the fourth quarter, assuming typical seasonality holds in the year’s second half.

Costs for shipping reached a record high.

On a seasonally adjusted basis, the expenditures index increased by 8.3 percent from May to hit an all-time high in June. The index tracks overall freight expenditures.

The 9.8 percent sequential reduction seen in May was eliminated by the 11.7 percent increase in inferred rates or expenditures divided by shipments. Mix had a significant role in the month as more expensive truckload shipments made up a larger percentage of all shipments. The percentage of less-than-truckload volumes in the freight mix was lower.

Additionally, the expenditures index was 95.5 percent greater than June 2020 and 25 percent higher year over year. The analysis calculates that an increase in diesel fuel costs was responsible for nearly 10% of the year-over-year difference.

In June, LTL rates increased sequentially by an unspecified amount.

With December seeing only a 2 percent year-over-year increase, Denoyer predicted that regular seasonality will likely maintain the index in positive territory through the end of the year. In comparison to the same period in 2021, the data set increased by 32% in the first half of 2022.

The TL linehaul index decreased 1.8 percent from May. It does not include fuel or accessory surcharges. However, the indicator was 27.8% higher than June of 2020 and 11.6% higher than June of last year.

“After a remarkable truckload rate cycle, the market equilibrium has shifted, with capacity now expanding quickly and demand to decline, which will limit future gains in the Cass Truckload Linehaul Index and probably force it lower in the coming months,” said Denoyer.

Although June saw the linehaul index’s lowest y/y gain of the year, it was still in line with the average of increases observed throughout 2021.

Despite recent market loosening and spot rate declines, many sizable carriers have noted that contractual rate hikes continue to exceed inflation and the greater cost profile of the business. Later this month, when the public fleets release their second-quarter financial figures, we’ll have a better idea of the status of the contract negotiations.

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