The Cass Truckload Linehaul Index continues to post record highs, but the slowing pace of year-over-year rate hikes reflects a weaker economy.
Intermodal pricing softened in July as well, with a year-over-year and sequential slip in the Cass Intermodal Linehaul Index for last month.
Truckload rates climbed 2.1 percent year-over-year in July, as the Cass Truckload Linehaul Rate Index rose from 108.8 in June to 109.5, a 0.6 percent increase. That’s the highest reading yet for the Cass Information Systems index, which previously peaked pre-recession at 106.7 in December 2006 and January 2007.
The rate of the year-over-year growth in truckload rates is slowing, however, dropping below 5 percent in June for the first time since January 2011.
Year-over-year growth in truckload rates, as tracked by the index, slowed from 8 percent in January to 7.2 percent in March, 5 percent in May and 3.9 percent in June.
Truckload rates aren't dropping, but they may be hitting a demand ceiling in 2012 after increasing rapidly from 2010 through 2011 from recessionary lows.
Truckload rates rose 9.9 percent year-over-year in July 2011 and 10.2 percent that August, according to Cass, increases that make for tougher comparisons in 2012.
Even taking 2011’s solid gains into account, the rapid drop in the annualized growth rate in rates during a recovery points to a slowing economy and more competition.
One likely result is less reinvestment in operations by carriers that say they need higher rates to buy new equipment and pay drivers higher wages.
Unless demand drops precipitously, which is unlikely absent a new recession or other economic shock, slower pricing growth is likely to translate to tighter truckload capacity.
Year-over-year, shipments were up only 1.8 percent in July, according to the Cass Freight Index, and were down 0.7 percent from June.
“The moderation over the last several months can at least partially be attributed to share shift toward intermodal,” said Donald Broughton of Avondale Partners.
Intermodal rates were down in July on a year-over-year and sequential basis, as the Cass Intermodal Linehaul Index hit its lowest point since December 2010. The intermodal index dropped 0.6 percent from a year earlier and 1.2 percent from June, falling to 99.6, below the index’s base level set in January 2005.
That indicates competition is heating up between intermodal rail and long-haul truckload operators as freight markets cool off, restraining rate hikes. “Pricing will remain under pressure in the near term as intermodal and truckload compete for volumes in a slower freight environment,” Broughton said.
Overall, the volume shift from road to rail “has proven stickier than we originally anticipated,” said Broughton, whose firm produces the indices with Cass.
The large number of intermodal containers on order and aggressive pricing by carriers ramping up intermodal business “will keep pricing grounded,” he said.