Imagine empty store shelves with anxious consumers waiting for products while shipping containers pile up at ports, creating bottlenecks that strangle economic recovery. This was the reality of global trade during the early days of the COVID-19 pandemic. But has the U.S. logistics industry now emerged from the shadow of the pandemic? The latest Cass Freight Index report offers valuable insights.
The Cass Freight Index: A Barometer for Logistics
Published by Cass Information Systems, the Cass Freight Index is widely regarded as one of the most reliable indicators of U.S. freight volume and market conditions. The index tracks multiple transportation modes including trucking, air freight, and rail, reflecting overall economic activity through changes in shipment volumes and expenditures. Many analysts consider it a leading indicator for economic turning points, sometimes even preceding the American Trucking Association's tonnage index. Consequently, it draws significant attention from logistics professionals, transportation companies, and economic analysts.
August Data: Signs of Continued Recovery
While still below pre-pandemic levels, the August Cass Freight Index report shows ongoing improvement in the U.S. freight market, continuing the positive trend observed in recent months. David Ross, a transportation analyst at Stifel Financial and author of the report, notes that the index's improvement aligns with feedback from carriers across transportation modes. He anticipates this "better" trend will persist through September, though predicts the index might not escape negative year-over-year growth until 2021.
Rail freight volumes are growing faster than the overall Cass Freight Index. However, since rail represents a relatively small portion of both the index and total U.S. freight expenditures, its impact remains limited. Nevertheless, all signs point to gradual economic improvement and month-over-month recovery in goods movement.
Key Metrics Analysis
- Shipments: August shipments reached 1.099, down 7.6% year-over-year but showing improvement from July's 13.1% decline, with an 8% month-over-month increase. Ross notes August represents the best year-over-year performance since February (the last full pre-pandemic month). The 8% sequential growth indicates accelerating recovery. The shipments index has risen 19.1% from April's low point, reaching its highest level since November 2019. Continued growth is expected through year-end as inventory levels remain relatively low.
- Expenditures: August freight expenditures stood at 2.695, down 5.1% year-over-year but up 9.9% month-over-month. This marks the highest monthly freight expenditure level since December 2019, excluding substantial fuel surcharge revenue. Ross observes that revenue per shipment trends (expenditures index divided by shipments index) have reversed and begun growing due to rising truck rates and actual constraints in driver and industry capacity.
Drivers of Shipment Growth
Ross explains the primary driver of shipment growth has been increased import activity, particularly at West Coast ports. He compares this West Coast port activity to "inventory dumping," where companies import more containers than usual through these ports to compensate for low inventory levels, then move them inland via truck or rail. Shippers prefer paying higher transportation costs to maintain inventory rather than wait for longer shipping times from Asia to East Coast ports.
Capacity Constraints and Rising Rates
The report indicates that average freight rates will likely continue rising in coming months due to tight capacity and strained supply-demand dynamics. Ross suggests significant new capacity won't enter or return to the market this year, meaning average freight bills should keep growing as supply-demand tension persists.
Understanding the Cass Freight Index
To fully appreciate the Cass Freight Index's significance requires understanding its composition and methodology. Rather than a single metric, it comprises multiple sub-indices including shipments, expenditures, and freight rates indices, each reflecting different aspects of the freight market.
- Shipments Index: Measures goods moved across transportation modes (truck, rail, air, etc.), serving as an important economic activity indicator since increased shipments typically signal economic growth.
- Expenditures Index: Tracks total freight spending by businesses, reflecting combined impacts of freight prices and volumes to assess overall market size and profitability.
- Freight Rates Index: Measures average transportation costs per unit, indicating supply-demand dynamics and factors like fuel prices and capacity.
The index's calculation involves complex data collection and analysis. Cass Information Systems regularly gathers freight data from clients including shipment volumes, expenditures, and distances. These undergo weighted averaging through specific algorithms to derive sub-index values, which are then combined into the composite Cass Freight Index.
Interpreting the Index: Key Considerations
While valuable, interpreting the Cass Freight Index requires attention to several factors:
- Seasonality: Shipment volumes typically fluctuate seasonally (e.g., holiday inventory buildups), requiring seasonal adjustment when comparing monthly indices.
- Economic Cycles: The freight market closely follows broader economic trends—expanding during growth periods as production/investment increase, contracting during downturns.
- Specific Events: Natural disasters, strikes, or other disruptions can significantly impact freight markets (e.g., hurricanes closing ports).
Limitations of the Index
Despite its value, the Cass Freight Index has limitations:
- Limited Scope: Primarily reflects U.S. domestic freight, with less coverage of international markets.
- Data Lag: Publication delays (e.g., August data released mid-September) mean it may not capture real-time market changes.
- Sample Bias: Data comes from Cass clients who may not represent the entire freight market.
The Index and Macroeconomics
The Cass Freight Index shares close ties with macroeconomic conditions. As freight activity represents significant economic movement, shipment growth typically indicates economic expansion, while declines may signal contraction. Moreover, since freight activity often leads other economic indicators, the index can serve as an early signal—rising values may presage coming economic recovery.
Pandemic Impact
COVID-19 profoundly affected global economics and freight markets through supply chain disruptions, demand drops, and capacity constraints, significantly impacting the Cass Freight Index. Early pandemic lockdowns and economic stagnation caused sharp index declines. Gradual reopening spurred recovery, though persistent supply chain issues continue challenging full rebound.
Future Outlook
Moving forward, the index's trajectory will depend on multiple factors including pandemic progression, economic recovery, supply chain conditions, and policy changes. While uncertainties remain, most analysts expect continued growth as economic recovery proceeds. However, the pandemic's deep economic impacts suggest the recovery path may prove uneven, requiring businesses to monitor developments closely and adapt strategies to navigate ongoing challenges.
Conclusion
The August Cass Freight Index report indicates steady recovery in U.S. freight markets, with positive trends across key metrics despite lingering pandemic effects. Growing shipment volumes and expenditures, alongside rising rates, suggest gradually returning economic vitality. Businesses must remain vigilant to market shifts and potential challenges while positioning to capitalize on recovery opportunities.
As a logistics industry bellwether, the Cass Freight Index provides a valuable window into U.S. economic conditions. Through careful analysis, stakeholders can better understand market trends, identify investment opportunities, and prepare strategically for future developments.