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Cass Freight Index indicates economic contraction may have begun

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Cass freight index indicates economic contraction may have begun
This graph shows the year-over-year percentage change in the Cass Freight Index-Shipments. The Cass Freight Index was one of the first freight flow indicators to turn positive (in October 2016), but recent declines has Cass wondering if an economic contraction has begun. (Courtesy: CASS INFORMATION SYSTEMS)

ST. LOUIS — June’s Cass Information System’s June report begins with a statement of fact and two follow up questions.

The statement: Dropping another -5.3 in June, negative volume seven months in a row.

Questions:

  • Has economic contraction already begun?
  • Will GDP be native in Q2?

“When the December 2018 Cass Shipments Index was negative for the first time in 24 months, we dismissed the decline as reflective of a tough comparison,” wrote the report’s author, Donald Broughton, founder and managing partner of Broughton Capital, a deep-data driven quantimental economic and equity research firm. “When January 2019 was also negative, we again made rationalizations. When February was -2.1%, we said, ‘While we are still not ready to turn completely negative in our outlook, we do think it is prudent to become more alert to each additional incoming data point on freight flow volume.’ When March was -1.0%, we warned that we were preparing to ‘change tack’ in our outlook, and when April was -3.2%, we said, ‘we see material and growing downside risk to the economic outlook.’”

With the -5.3% drop in June following the -6.0% drop in May, Broughton said Cass was repeating its message from last month: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”

“We acknowledge that all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP,” Broughton said. “May and June’s drops are significant enough to pose the question, ‘Will the Q2 ’19 GDP be negative?’”

The report said the weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with air freight and railroad volume data, strengthens Cass’ concerns about the economy and the risk of ongoing trade policy disputes.

Weakness in commodity prices and the decline in interest rates have joined the chorus of signals calling for an economic contraction, Cass said.

“We should note that the Cass Freight Index was one of the first freight flow indicators to turn positive (in October 2016) and confirm our prediction of a recovery in the U.S. economy,” Broughton wrote. “As we try to navigate the ebb and flow of the economy, we don’t pretend to have any ‘secret sauce’ or incredibly complex models that have exhaustively analyzed every data point available. Instead, we place our trust in the simple notion that the movement of tangible goods is the heartbeat of the economy, and that tracking the volume and velocity of those goods has proven to be one of the most reliable methods of predicting change because of the adequate amount of forewarning that exists.”

Beyond current concerns that the index is negative on a year-over-year basis for the seventh month in a row, Broughton said Cass is concerned about the severe declines in international air freight volumes (especially in Asia) and the ongoing swoon in railroad volumes, especially in auto and building materials.

”We see the weakness in spot market pricing for transportation services, especially in trucking, as consistent with and a confirmation of the negative trend in the Cass Shipments Index,” he said. adding that as volumes of chemical shipments have lost momentum, Cass’ concerns of the global slowdown spreading to the U.S., and the trade dispute reaching a ‘point of no return’ from an economic perspective, grow.

“Bottom line, more and more data are indicating that this is the beginning of an economic contraction,” Broughton said. “If a contraction occurs, then the Cass Shipments Index will have been one of the first early indicators once again.”

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Fleet Focus: Fuel economy, maintenance must be considered for used trucks

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used truck with hood up
Equipment pricing must be weighed against fuel economy, anticipated maintenance costs and expected freight rates when considering the purchase of a used truck. (iStock Photo)

Small trucking businesses depend heavily on the used truck market but potential buyers trying to nail down the best choice are trying to hit a moving target. Prices fluctuate depending on economic conditions, freight availability and, increasingly, government mandates for emissions and fuel economy.

For much of 2019, the economy was expected to slow, possibly going into recession. New truck purchases added capacity to the market. Spot freight rates slowed and then began falling, followed by contract rates. Several large carriers shut their doors due to (take your pick) tightening markets, rising costs, mismanagement or malfeasance. In theory, the used truck market should have received an influx of trucks. It did.

According to a report from ACT Research, used truck sales declined by 15% in 2019 compared to 2018. Average prices declined too, by 7%, according to the same report.

“Dealers are reporting used truck sales have slowed and inventory levels are building, particularly with late-model aerodynamic sleepers,” said Steve Tam, vice president at ACT Research. “The price depreciation is largely the result of inventories that have grown due to more trades coming to dealers, slowing freight, and the cyclical nature of truck sales.”

While lower used truck prices may be attractive to smaller trucking businesses, including independent contractors, there’s a catch. In an effort to reduce emissions and increase fuel efficiency, the rules keep changing.

The year 2007 brought a huge change. Drivers and owners of new trucks complained of lost time and expense due to an issue older trucks didn’t have, regeneration of the particulate filter that replaced the muffler. Drivers of older trucks smiled as they passed new equipment sitting on the shoulder for a “regen” or waiting for a tow. 2006 models sold in record numbers as carriers “pre-bought” trucks during the last year the “old” technology would be available. When those trucks hit the used truck market, an event hastened by the recession of 2008, prices dropped due to the large number available.

Then 2010 brought a new set of standards and a product that drivers must have thought was a mechanic’s joke like “blinker fluid” or “muffler bearings.” New trucks were built with Selective Catalytic Reduction technology, necessitating the use of the now-familiar Diesel Exhaust Fluid (DEF). New trucks were more expensive but there was a tradeoff — fuel mileage was expected to improve, and it did.

However, the first phase of EPA standards continued until 2017. Manufacturers achieved more power from smaller engines, made better use of aerodynamic technology and increased use of auto-shift transmissions to get top performance from each vehicle.

While all this was happening, other technological advances increased safety levels. Collision mitigation systems that automatically apply brakes, lane departure warning systems, stability control and other safety features became standard equipment.

Trucks became safer as they became cleaner and more fuel efficient. Purchase prices rose, but increased fuel economy offset the price, according to the non-profit Transport & Environment, an international group that promotes moving to an emissions-free transportation network. According to a January 2018 report from the group, a truck purchased in 2017 cost $2,400 more than one bought in 2011 but provided $8,200 in fuel cost savings over the older model.

That was Phase 1 of the EPA’s plan. Phase 2 started in 2017 and ends in 2027. Another 10% improvement in fuel economy has been mandated, with improvements in emissions also required. In the meantime, advances in alternative fuel vehicles, including electric, will undoubtedly bring further changes to the industry, perhaps making diesel engines
obsolete in the not-so-distant future.

For the used truck shopper, the choices can be overwhelming. Buyers must consider more than simply price and mileage. Purchase price savings for a truck just a year or two older can be swallowed up in increased fuel costs. Plus, some states and metropolitan areas have restrictions on the type of equipment they allow to operate within their jurisdictions.

Large carriers with newer equipment can offer lower freight rates, making competition more difficult for an independent owner with an older truck. Insurers may offer lower rates for trucks equipped with modern safety equipment.

For drivers contemplating a used tractor purchase, research is more important than ever. The best deal available may not be the best decision. Before discussing price with a dealer, it may help to talk to carrier representatives, potential customers or other truckers with similar businesses.

Equipment pricing must be weighed against fuel economy, anticipated maintenance costs and expected freight rates. The advantageous choice could be the newer, more expensive model.

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ATA truck tonnage index rose 0.1% in January, 0.8% higher than January 2019

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Ata truck tonnage index rose 0.1% in january, 0.8% higher than january 2019
Trucking serves as a barometer of the U.S. economy, representing 71.4% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. (iStock photo)

ARLINGTON, Va. – American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index rose 0.1% in January after rising 0.5% in December. In January the index equaled 117.4 (2015=100), compared with 117.3 in December.

ATA recently revised the seasonally adjusted index back five years as part of its annual revision.

“Over the last two months the tonnage index has increased 0.6%, which is obviously good news,” said Bob Costello, ATA chief economist.

“However, after our annual revision, it is clear that tonnage peaked in July 2019 and, even with the recent gains, is down 1.8% since then,” he continued. “Softness in manufacturing and elevated inventories continue to weigh in on the truck-freight tonnage.”

Compared with January 2019, the SA index rose 0.8%, which was preceded by a 3.1% year-over-year gain in December. In 2019 the index was 3.3% above 2018.

The not-seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 114.6 in January, 1.1% above the December level (113.3). In calculating the index, 100 represents 2015. (Note: ATA’s tonnage data is dominated by contract freight.)

Trucking serves as a barometer of the U.S. economy, representing 71.4% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 11.49 billion tons of freight in 2018. Motor carriers collected $796.7 billion, or 80.3%, of total revenue earned by all transport modes.

ATA calculates the tonnage index based on surveys from its membership, and has been doing so since the 1970s. This is a preliminary figure and is subject to change in the final report issued around the fifth day of each month. The report includes month-to-month and year-over-year results, relevant economic comparisons and key financial indicators.

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The Trucker Newspaper – February 15, 2020 – Digital Edition

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