US overland volumes begin slow recovery

Despite being known as a growth driver in Europe, German consumer demand is often mediocre with the economy disproportionately dependent on exports of automotive products in particular.

Retail sales data out last week indicated positive signs for the US economy. Sales in May were up 17.7% against April, which represented the largest monthly gain on record (to 1992). This followed a dismal previous month but nonetheless the sharp upturn appeared to beat economist’s expectations.

Correspondingly there appears to have been a rebound in US freight volumes, although at a much weaker rate. The Cass Freight Index (which can be viewed on Ti’s dashboard) showed an improvement in shipment volumes of 1.6% against April. However, April’s score was 14.8% lower than in March. Overall, this means freight volumes in May were still nearly a quarter lower than they were in 2019.

It appears that the recovery in retail sales largely drew on the high level of inventories that built up during lockdowns. According to the US Census Bureau, the ratio between inventory and sales in the US reached a record high level of 1.67 in April. Prior to the crisis, the level was 1.38 in January and February. The previous peak during the global financial crisis saw the level rise to 1.48. These record high inventory levels certainly created high demand in the warehousing sector, but it has also meant road freight has not seen much of a boost from the recovery in retail sales volumes. A stronger increase in road volumes is likely to take place in earnest when inventories fall down to more ‘normal’ levels.

With road freight volumes still down, a high proportion of capacity has been removed from the market. Because of this, truckload rates have held up steadier than the fall in demand. Nonetheless, rates are down overall, because not all of that capacity can remain out of the market for that long. According to DAT Solutions, spot rates for vans fell 12.8% month-on-month in April, with contract rates down 3.8%. Conditions are harsh, particularly for smaller carriers, but they have been insulated somewhat by the sharp drop in diesel prices.

These supply-side and pricing dynamics in the road freight market have led to a weaker recovery in rail/intermodal volumes. Since road freight rates are now much lower, there is evidence that returning freight volumes are utilising road instead. For the week ending June 13, weekly railcar volumes were still 22.8% lower than the same week in 2019 according to the Association of American Railroads (AAR). Like in road, volumes appear to have hit their trough, but rail and intermodal volumes may well continue to lag behind the recovery in road freight.

According to the American Trucking Association (ATA), that full recovery may not occur until the third quarter of 2021. Cass also does not expect pre-crisis freight levels to recover until 2021 at the earliest due to the rise in unemployment and other results of government intervention. It also states that a V-shaped recovery can be removed from discussions.

However, it does appear that the trough in volumes has now been reached. Improvements appear likely going forward, although a second wave of infections could also hinder the market’s recovery.

Source: Transport Intelligence, June 22, 2020

Author: Andy Ralls

Ti’s dashboard contains a variety of data on US freight volumes, including the Cass Freight Index, DAT’s Truck-to-Load Ratio, the ATA Truck Tonnage Index, the US Census Bureau’s Inventory-to-Sales ratio and AAR carload volumes. More information can be found here.