The June 2023 Cass Freight Rate Index reflects continued turbulence within the freight market sector. This comprehensive assessment, encapsulating shipment volumes and freight costs, reveals a year-over-year (y/y) decrease of 4.7% in shipments and a more substantial 24.5% y/y reduction in expenditures. Despite these trends, the market indicates some potential for recovery, suggesting the toughest phase of the downturn has passed.
This analysis is co-written by our team and GPT 4, a Large Language Model maintained by Open AI.
Shipment Trends Indicate Gradual Improvement
In June, the shipments component of the Cass Freight Index saw a reduction of 1.6% month-over-month (m/m), a figure that rose to 1.9% when seasonally adjusted (SA). However, the y/y decline showed signs of slowing down to 4.7% in June, suggesting a minor rebound from the 5.6% drop in May.
The Index has been navigating a downcycle since its first y/y decline 18 months ago, with the preceding three down cycles spanning 21 to 28 months. The key challenges currently faced include falling retail sales trends and persistent destocking. Nevertheless, as real incomes rise and the most severe phase of destocking concludes, these dynamics may start to shift.
Expenditure Trends Echo Shipment Patterns
In line with the shipment trends, the expenditure component of the Cass Freight Index, representing total freight spending, decreased by 2.6% m/m and a striking 24.5% y/y in June. Given the 1.6% m/m reduction in shipments, it can be inferred that rates dropped by 1.0% m/m. In 2022, the expenditure index increased by 23%, following a record 38% rise in 2021. However, it is projected to decrease by approximately 17% in 2023. With both freight volume and rates currently under strain, the actual decline in freight spending this year might approach ~20%.
Inferred Freight Rates Under Pressure
The rates implicated in the two components of the Cass Freight Index fell sharply by 21% y/y in June, following an 11% reduction in May. Approximately 5% of this decline is attributed to lower fuel prices. However, it is apparent that market pressures continue to bear down on rates, indicating a challenging landscape for carriers.
The Truckload Linehaul Index Snapshot
The Cass Truckload Linehaul Index, gauging the per-mile change in linehaul rates, recorded a 0.4% m/m drop in June. On a y/y basis, the index decreased by 14.1% in June. As this index encompasses both spot and contract freight, it suggests a continued downward adjustment in the larger contract market.
Anticipating the Future
Although the volume downturn appears to be reaching its conclusion, the U.S. freight transportation industry is on the verge of a new cycle. The present phase of this cycle may be described as a bottoming phase. However, as Class 8 build rates persist at high levels, there is ongoing pressure on fleets to seat these tractors, which could potentially extend the bottoming process.
Yet, the future direction of freight markets is encouraging. The ACT Research Freight Forecast provides analysis and forecasts for a wide range of U.S. freight measures, including the Cass Freight Index and Cass Truckload Linehaul Index. These forecasts have demonstrated remarkable accuracy, with ACT's predictions for the shipments component of the Cass Freight Index achieving 97.5% accuracy on average for the 24-month forecast period.
In conclusion, the freight market is currently navigating a period of turbulence with potential recovery on the horizon. The industry continues to encounter challenges, but the rise in real incomes and the end of intense destocking offer some optimism. As we traverse this bottoming phase, it is essential to maintain a close watch on market dynamics and industry forecasts.
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