North American freight shipments and expenditures continued to buck the historic trend and increased again in May, according to the latest Cass Freight Index.
“The first five months of 2014 were the strongest since the end of the great recession,” said Rosalyn Wilson, supply chain expert and senior business analyst with the management consulting firm Delcan Corp., who provides analysis for the report. “While this seems counter to the dismal GDP reading for the first quarter, which shows a 1% drop or a contraction in the economy, much of the decrease in the gross domestic product can be attributed to declining inventories, slowing exports and weather‐related issues.”
She said many other economic signs, especially growth in the manufacturing sector, point to an uptick in the five‐year recovery and a continued increase in freight movements.
May shipment volumes rose 1% to the highest level since October 2011. This was the fourth month in a row that the number of shipments increased. May shipments were 3.6% higher than a year ago and 26.4% higher than shipment levels at the end of the 2009 recession.
“Capacity problems are being experienced in both the trucking and the rail industries as volumes grow,” said Wilson. “The impact of productivity‐reducing truck regulations has exacerbated the driver shortage, further limiting capacity despite the strong growth in the size of the truck fleet in 2014.”
Freight expenditures climbed up 1.1% in May, setting another record high. Spending was 11.2% higher than a year ago and 77.7% higher than at the recession’s end in 2009.
“While freight rates are not showing the full effect of tightening capacity yet, it is unlikely that this situation will continue,” she said. “New equipment and drivers have been added to the trucking fleet, and both are increasing costs substantially, the driver shortage is pushing up the cost of recruiting, training and retaining drivers.”
Freight expenditures are up 11% since the beginning of the year, which is lower than the 13.1% increase in the number of shipments.
“This indicates that rates are very competitive. Spot market prices have seesawed for the last couple of months, a good indicator of the still somewhat sporadic nature of the capacity problems,” Wilson said.
Wilson noted that although the performance of the economy was very weak overall in the first quarter, freight continued to gain momentum and accelerated in the second quarter.
“The downward revision in first quarter GDP is not a harbinger of things to come. The bad weather contributed to a substantial drop in business inventories, which is a negative factor for GDP but an overall positive for the economy,” she said. “The health of the freight market is a very good indicator of the direction in which the economy is moving. All indications point to moderate growth in freight over the next couple of months, which will bode well for the economy in general.”
The Cass Freight Index represents monthly levels of shipment activity, in terms of volume of shipments and expenditures for freight shipments and is based upon the domestic freight shipments of hundreds of Cass clients representing a broad spectrum of industries.