Cass: High Rates Push Freight Costs to New Record

Shipments stepped higher again in November with freight expenditures continuing to surge, according to a Tuesday report from Cass Information Systems.

The Cass Freight Index recorded a 4.5% year-over-year increase in shipments, up 2.6% from October seasonally adjusted. The expenditures component jumped 43.9% from a year ago and 10.2% sequentially.

The expenditures index logged in at a new record and 52.1% higher than November 2019. The two-year growth rate was the highest on record in nearly a decade. The bulk of the change came from sharp increases in freight rates as the transportation industry grapples to meet a sustained level of elevated demand with a suppressed amount of capacity, which remains out of position and strewn across a congested logistics landscape.

The cost index is forecast to be up 37% year-over-year in 2021, following a 7% increase last year. More upside is expected according to the report's author, Tim Denoyer, senior analyst at ACT Research.

"Tougher comparisons in the coming months will naturally slow these y/y increases, but again, just using normal seasonality from here, the increase in 2022 will still be 18%-20% at this trend level," Denoyer wrote. 

The increase in shipments during the month supported a rise in the expenditures index as well.

November marked two straight monthly sequential increases in the dataset for volumes. The index was 7.3% higher on a two-year comparison. The growth rate is notable considering the lack of equipment and warehouse space throughout the supply chain.

"Freight volumes remain capacity-constrained, as shown by declining rail volumes and the ongoing backlog of containerships outside of U.S. ports," Denoyer stated. "Although little progress has been made on the ocean as of yet, the pickup in our shipments index shows progress as the freight industry works to de-bottleneck."

Table: Cass Information Systems. SA (seasonally adjusted)

The growth rate in the TL linehaul index slowed in November, up 9.6% year-over-year. The per-mile calculation, which excludes fuel and accessorials, was down 0.9% compared to October.

The index has been running below the roughly 20% increases the public fleets have recorded of late. Denoyer said the index captures a longer-haul freight mix than that of most publicly traded carriers. Adjusting for the length of haul, he thinks the dataset is on par with the big fleets.

"The story is the same: Freight demand is clearly still strong and persistent supply constraints are keeping upward pressure on rates," Denoyer added. "The gradual easing of supply constraints for critical components of trucking capacity – drivers and equipment – will continue to be key to the longer-term outlook. We see this changing the trajectory of the Cass Truckload Linehaul Index over the next year, but not quite yet."

Inferred rates, or expenditures divided by shipments, increased 37.7% from last November, the highest year-over-year growth rate on record. The year-over-year comp has continued to gain steam after first turning positive in August 2020.

Denoyer attributes "a significant part" of the increase to a jump in excess miles as rail congestion has forced container imports to be hauled by truck. Higher fuel surcharges and accessorials were also cited as the reasons for the increase in inferred rates.

Inferred rates are expected to be up 23% year-over-year in 2021 "and are heading into 2022 up even more than that on a y/y basis," Denoyer said.

He said shortages appear to be easing, pointing to "lower air and ocean rates, better port productivity, reduced rail network congestion, improved driver hiring and rising auto production rates" as evidence.

"Though the near-term direction of freight rates remains higher, cyclical forces like driver hiring and semiconductor wafer fab construction, which take time, are diligently progressing in the background and will dictate the trajectory of capacity, volume, and rate trends in 2022 and beyond," Denoyer concluded.

Data used in the Cass indexes are derived from freight bills paid by Cass, a provider of payment management solutions. Cass processes more than $26 billion in freight payables annually on behalf of its customers.

Click for more FreightWaves articles by Todd Maiden.

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