CASS INDEX OUTLOOK posted positive y/y comps in October – both overall and excluding coal & grain. This data set tracks closely with the Cass Freight Index, so given that total rail carloadings have just turned positive here in October, we expect Cass Index trends may turn to y/y growth this month as well. Expenditures With respect to overall spend on transportation, the Cass Freight Index for expenditures increased 1.2% y/y in September – 7% higher than last month, 29% better than May’s low, and the highest freight spend we’ve seen since June 2019 (and that’s with significantly less contribution this year from fuel surcharge revenue – Exhibit 7). As a reminder, the expenditures index measures the total amount spent on freight. Diesel prices lower y/y, otherwise dollars/bill (yield) would be even higher. Cost per shipment (simply the expenditures index divided by shipments) is increasing as trucking rates rise. There are real constraints on driver and industry supply and fewer trucks running (Exhibit 9), so as freight has rebounded, the capacity squeeze has driven rates up significantly. We don’t see much capacity entering or returning the rest of the year, so as supply/demand remains tight, we expect continued growth in the average freight bill. Cost per shipment moving higher, as capacity has tightened in the truckload market. Both large and small trucking fleets have shrunk in 2020. Truckload Linehaul Index The Truckload Linehaul Index, measuring permile linehaul rates, takes a look at the largest (and most fragmented) market in the domestic transportation landscape. This index declined 3.4% y/y in September. Still, this was the highest reading since December 2019, indicating a turn in truckload pricing. We believe it is not higher only because it’s mostly tied to contract rates and not the faster-moving spot market. As contract rates are repriced over the coming quarters, this will play catch-up and turn to y/y growth. The combination of rising and healthy demand with limited supply is causing shippers to pay more to get their freight moved, as “turn-downs” by carriers are still at very high levels. This is evident from the spot rates posted in through
early October. Spot rates are tracking much higher y/y (including fuel surcharges) in the dry van, flatbed, and reefer markets, with dry van now above 2018 peak levels. All truckload spot rates near, at, or above high 2018 levels. We note the Cass Truckload Linehaul Index has a strong correlation to the quarterly yield metrics reported by the publicly traded TL carriers. Cass Truckload Linehaul index shows a turn underway into Q4 with public carrier rates. Cass Intermodal Price Index The Cass Intermodal Price Index, measuring total per-mile costs, looks at the smaller intermodal market and shows much worse trends than TL, falling to a new low of (21.4%) y/y in September (and down 4% sequentially from August – not due to fuel). This is the lowest absolute reading since September 2010. There are two main drivers of this – 1) the fuel surcharge – while the Cass Truckload Linehaul Index excludes fuel surcharge, the intermodal index includes fuel surcharges, and 2) intermodal pricing has been on a lag vs TL pricing, so as intermodal demand improves further and TL contract rates move higher, intermodal rate increases should follow. In summary, the Cass Freight Index showed a big step up in September, in both shipping volumes and overall spending. We expect the rising price environment to continue through year-end and into 2021, as contract pricing in both TL and intermodal are reset higher. Demand should be strong at least into Q1 2021 due to inventory restocking, so we believe we’ll see positive y/y shipment growth in Q4 of this year. Manufacturing Outlook / October 2020
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