Freight spending, shipment volumes fall in weak 2Q

Freight spending declined more significantly than shipment volumes in the second quarter amid continuing market challenges, according to a recent report. Still, the second-quarter decline in shipments was the largest year-over-year decrease since the second quarter of 2020.

The newest U.S. Bank Freight Payment Index shows for the first time the second quarter of 2023 was the second consecutive quarter with quarterly and yearly declines in shipments and spending. Shipments declined by 1.2% from the first quarter and by 9% from the same period last year. Over the same periods, spending fell by 8.3% and 10.9%, respectively.

The report attributed the soft freight market to multiple trends, with the largest being that consumers continue to spend more on services instead of goods. Services require less capacity than goods.

According to the U.S. Bureau of Economic Analysis, personal outlays for all goods rose by 2.1% in the second quarter from the same period last year. However, personal spending did not keep pace with inflation, indicating that actual volumes of goods buying decreased. Meanwhile, outlays on travel, including air transportation and hotels, increased between 15% and 20% over the same period.

Federal Reserve data shows manufacturing activity fell in the second quarter. Housing starts also decreased in the quarter from the same period in 2022. Both contribute to truck freight.

Another freight headwind has been that shippers are consolidating shipments by waiting on full trailers, reducing their overall shipment numbers. Weaker international trade is also affecting truck freight. Census Bureau data shows the value of imported goods fell between 7.5% and 10% from a year ago. Exports of goods were down between 6% and 8.5% over the same period.

“In light of all these factors, truck freight continues to underperform relative to the broader economy,” the report shows.

While shipments decreased, freight spending was mixed in the second quarter. The spending fell by the largest sequential amount in three years, indicating a challenging market for carriers but savings for shippers. The spending fell to its lowest level since the third quarter of 2021, which was still a robust quarter. The spending declined by 10.9% from last year because of the lower shipment volumes and more available truck capacity than loads to haul, according to the report. The trend had been noted in the spot market for several quarters but recently moved into the contract freight market also.

Regionally, freight volumes and spending were mixed. In the Southwest, shipment volumes rose by 14.8%, highlighting the continued strength in cross-border truck traffic with Mexico. Year-over-year shipment volumes fell in all other U.S. regions, with the Northeast experiencing the largest decline at 27.1%. Year-over-year freight spending rose by 4.3% in the Southwest. It declined in all other regions, with the Midwest posting the largest decline at 18.7%.

CASS FREIGHT INDEX
Another logistics report confirmed the continuing weak freight market. The July Cass Transportation Index Report shows the shipments component of the Cass Freight Index fell by 2.2% in July from June. The shipments decreased by 8.9% in July from the same month last year. The expenditures component of the Cass Freight Index decreased by 2.8% in July from June. It fell by 24.4% in July from the same month in 2022.

According to the Cass Freight Index, the freight market downcycle is 19 months old. The past three downcycles ranged from 21 to 28 months. Primary market headwinds included declining retail sales and destocking, “but dynamics are shifting as real incomes improve and the worst of the destock is in the rearview.”

Tim Denoyer, author of the Cass Transportation Index Report, said publicly traded, for-hire truckload fleets have collectively reduced their truck counts by 3% in the first half of 2023 as private fleets continue to add trucks. The private fleet growth is pulling freight from the for-hire market and prolonging the industry downturn. Industry capacity is unlikely to tighten broadly until private fleet growth slows.

“Though the freight market is still near the bottom of the cycle, the first step in getting out of a hole is to stop digging,” Denoyer wrote. “New truck orders in the next few months will be very interesting, and in our view, will be pivotal to setting the market tone for 2024. The capacity contraction in the for-hire sector is coiling the proverbial spring for better market conditions, but this outlook could be spoiled if the private fleet segment continues its massive fleet expansion.”