The Cass Freight Shipments Index shows broader areas of less predictability over the past six years
After experiencing one of the most stable stretches in modern history from 2010 to 2015, the freight market was on a wild ride worthy of a theme park focal point. After six years of “anomalous” behavior, it’s probably time to consider the “normal” five-year period in the first half of the 2010s as an anomaly.
The Cass Freight Shipments Index, which has had a base value of 1 since January 1990, has remained relatively stable, fluctuating between values of 1 and 1.2 between mid-2010 and late 2015 (20% difference). More important than bandwidth is the repetitive seasonal rhythm that resembles a healthy echocardiogram.
From 2016 to date it has ranged from a high of 1.307 in May 2018 to a low of 0.923 (41% difference) in April 2020, but the somewhat predictable seasonal pattern is largely absent over this period.
Combining primarily truckload, LTL and intermodal shipment volumes based on invoices it processes from its customers, the Cass Freight Shipments Index is a robust aggregate measure of shipping trends in the United States website states that it is approximately 50% truckload and 25% LTL.
Many may still dismiss the events of the last six years as black swans with little chance of repeating themselves. While this may be true for individual events, no one can ignore the fact that these types of pattern disrupters have become more prevalent and their effects continue well beyond their initial onset.
The COVID-19 pandemic was obviously the most disruptive economic force in recent history and will have a lasting impact on many supply chains. But the most recent turbulent freight market cycle began in 2016 with an industrial recession caused in part by the collapse in crude oil prices.
Cargo demand weakened in 2016, leading to an erosion of capacity resulting in an extremely tight cargo market in 2017-18 after demand returned to land thanks to tax breaks, an active harvest season and some major hurricanes.
Growth in spot rates during this period led to accelerated fleet expansion that flooded the market with capacity in 2019, as evidenced by the rise and subsequent collapse in used Class 8 truck prices in 2018-19. As a result, carrier failures rose to multi-year highs. Many of the affected carriers, such as Celadon and LTL carrier New England Motor Freight, have long histories.
Many argued that the market would see another 2018 in early 2020 due to capacity erosion. The first wave of the pandemic may have accelerated this situation as many companies braced themselves for an economic downturn.
The driving force behind this volatility is the tight operating environment for most capacity in the US. Approximately 95% of trucking companies operate 20 or fewer trucks in their fleets. Each of these operators represents a competitive entity and they are most at risk when demand falls.
The Truckload Carriers Association (TCA), composed primarily of small to medium-sized fleets, compiles benchmark operational metrics for its members. The data illustrates the different experiences between large and small transport companies.
The Operating Ratio (OR) for TCA’s Dry Van Carriers averaged over 100 in 2019, indicating that they were essentially balanced in terms of operations that year. This figure excludes taxes and financing costs, so many were actually making a loss overall.
Since August 2020, their OPs have only improved by an average of 4% or 96%, while larger fleets such as Knight-Swift have scores below 80% – this is because most of the economic impact of the pandemic has benefited larger shippers who are usually use larger carriers.
With the recent collapse of the truckload spot market, the smaller hauliers will be the first to feel the pressure. They represent most of the competition in the domestic truckload market and rely heavily on transactional freight to support their networks. Shrinking demand will hit them hardest and, due to a higher cost burden, will lead to increasing exits faster than in previous years.
Demand-side volatility is not new, but many have lulled themselves into a false sense of security in the post-recession era. Freight market activity resembles a cryptocurrency chart rather than a predictable echocardiogram, which is also historically more common. The recent black swan events only act as an accelerator, not a detonator.
About the chart of the week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point for describing the state of freight markets. A chart is selected from thousands of possible charts on SONAR to help participants visualize the freight market in real time. Each week a market expert will post a chart live on the front page along with commentary. Thereafter, the chart of the week will be archived on FreightWaves.com for future reference.
SONAR aggregates data from hundreds of sources, presents the data in charts and maps, and provides real-time commentary on what freight market professionals want to know about the industry.
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