The Great Modal Migration of 2021 Continues [Commentary]

If looking behind the Cass shipment and expenditures numbers means what I think it does, long-haul carriers could benefit. 

In September, the Cass Shipment Index rose by 0.6% year-over-year and dropped 4.1% from August (following a 4.8% drop from July to August). But the Cass Expenditures Index rose by 32.2% compared to last year and was down 0.4% from August (following the previous month’s increase of 9.2%). 

The spread between the two implies freight rates jumped by more than 30% compared to last year.  Cass’s Truckload Linehaul Index rose another 1.1% from the previous month, up 12.7% year-over-year. 

Let’s dive a little deeper. While it is possible that Hurricane Ida impacted the September data, truckload linehaul rates only rose by 12.7% year-over-year and 1.1% from the previous month. Given that we know anecdotally that less-than-truckload rates are up by around 20% and that truckload rates are up by 15%-19%, the Cass Linehaul Index increase doesn’t appear to make sense…. until you look at the fact that the length of haul in the Cass data again rose from the previous month. 

Because longer-haul shipments tend to carry a lower average rate, and rail intermodal growth was down 7% from the previous year (and truck rates are generally above intermodal rates), what appears to be happening in the data is potentially a modal shift away from intermodal toward longer-haul truckload. 

This also explains the recent move up we have seen in spot dry van rates, and why LTL mid-quarter volume updates of negative mid-single digits to positive low single-digits don’t match the shipment volumes being reported in the American Trucking Associations data. Truckload makes up about 50% of the Cass index, LTL about 25%. Cass attributes the longer miles per shipment to supply chain inefficiencies, causing freight to find carriage at less convenient ports of call. 

The implication? Rail and intermodal revenues are likely to be under pressure, but truckers such as Knight-Swift and longer-haul carriers such as Covenant are likely to benefit. This also explains the data if truckers are taking intermodal shipments for customers in place of rail service at higher rates.   

Intermodal appears to be losing additional share to trucking in September, given not only slow port throughput, but also a lack of equipment and less predictable service in the rail industry. We have heard that there continues to be a lack of available industrial warehouse space in Southern California. Media reports speak of available vacancy rates less than 2%, but that doesn’t impact hot-shot truck service on longer-haul routes as much.  

All this could mean better-than-expected earnings for truckers this fall, and perhaps a stronger outlook for 2022, despite continued increases in new-hire wages. Also, given recent equipment-related production inefficiencies and the likelihood of fewer new tractors entering the market over the next couple quarters, this trend has some staying power. 

This commentary first appeared in the November 2021 issue of Heavy Duty Trucking.