Cass' July volume, rate data shows market staying red-hot

A monthly index of North American volume and pricing released today showed continued strength in July, though slightly down from the torrid pace in June.

The index, published by audit and payment firm Cass Information Systems, Inc. and Broughton Capital, LLC, a firm run by analyst Donald Broughton, reported that July volumes rose 10.2 percent from the year-earlier period, while "expenditures"—Cass' lingo for pricing--jumped 17.9 percent from July 2017. Both figures were down 0.2 percent from June's levels.

The current strength in demand and rates is amplified by the fact that they are compared to 2017 periods which were also strong, said Broughton, who analyzes the Cass data and provides the accompanying narrative. Another sign of strength is that July is historically a slow period for North American freight traffic, Broughton said. The pricing data includes the impact of fuel surcharges, which have been rising to mirror the substantial increase in diesel prices over the past 12 months. The index, based on an analysis of $25 billion in annual freight bills paid by Cass, encompasses all modes of transport.

Volumes and freight rates have escalated dramatically since the end of last year. After leveling off somewhat in the first quarter, rates spikes in the spring and summer to levels not seen for years. To put 2018's strength in perspective, traffic levels in February, normally not a great month due to adverse winter weather and other seasonal factors, were roughly equal to the activity in June 2014, which was the peak of a very strong year, Broughton said. He called such a phenomenon "extraordinary."

Barring an unexpected and extreme event, the current trends should hold through the rest of the year, Broughton predicted. Strong numbers for dry van traffic, which are predominantly consumer loads, reflect continued buoyancy on the part of consumers, he added. In addition, there are reports of unavailable truckload capacity even in situations where users will pay almost anything to procure it.

In a related development, Cass "Truckload Linehaul" index, which measures line-haul rates excluding fuel surcharges, rose 10.2 percent over July 2017 figures, the first double-digit year-over-year gain since the index was created in 2005. After bottoming in March 2017, the index has risen for 16 straight months, and Broughton said stronger gains are likely to come. Broughton revised his 2018 forecast of gains in truckload contract pricing to an upper-end range of 12 percent from 8 percent.

Total intermodal pricing, which includes the impact of fuel surcharges, rose 12 percent in July over year-earlier levels, the largest year-on-year increase in 7 years, according to Cass data. Demand for domestic intermodal services are being influenced by tight truckload capacity and rising diesel fuel prices, Broughton said.

In such a red-hot environment, it is hard to find anyone who will forecast a worm-turning. One who has is Noel Perry, a transport economist and founder of Transport Futures, a consultancy. Perry said at an industry conference in April that rates will level off dramatically during 2019 as economic growth cools and meaningful capacity enters the market.

Perry has not changed his view in the past four months, saying in early August that rates will hit the wall between next January and August, with the biggest hits coming next summer.