US Freight Shipping Rates Peaked, Indication Of Easing Inflation

The US freight rates have increased 28% year over year but reduced by nearly 2% month over month in July 2022, a probable signal that indicates that the US market has hit its peak freight rates, per the July Cass Freight report, just when the peak shipping season involving the back-to-school phase and the holiday season kick-off.

Tim Denoyer, the author of the Cass Index Report and senior analyst at ACT Research, told CNBC that the peak season is expected to have more free capacity and that it might be a good thing considering a cost perspective for big retailers who’ve been struggling with cost inflation.

The report comes as major retailers are prepared to report their earnings this week. Target and Walmart have cited the requirement to shift inventories owing to evolving spending patterns alongside inflationary consumer pressures.

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The Cass Freight report follows better-than-expected inflation reports last week that indicate a possible slowdown in inflation. The SPDR S&P Retail ETF achieved almost 12% in August this year compared to a 4% move upward for the S&P 500.

CNBC got the opportunity to look at the data sourced by Cass Information Systems, which reviews shipments and rates in North America’s market.

According to the report, shipments and freight moved by firms increased year over year by 0.4% but dropped about 2% when estimated month over month.

Denoyer mentioned that the market balance has shifted. It is steady from a demand perspective; however, the supply has exponentially grown.

Month-to-month fluctuation in freight rates this year
Even with the shipment trends flattening, demands keep being elevated over pre-COVID-19 levels, and the US logistics majors, especially trucking firms, must continue to experience strong pricing power, per Denoyer. The ongoing Covid-19 crisis led several independent truckers to quit the industry, and in 2021, the American Trucking Association shared a report finding the nation’s trucker shortage hitting a record of 80,000.

That report also discovered that 1,000,000 new truckers would be required over the coming decade to maintain the current levels.

The sales price of a used Class 8 Truck (a tractor-trailer’s tractor) has doubled from 2019, per data from ACT Research. Denoyer has to say that it has played a predominant role in keeping new firms and drivers from entering trucking and will continue influencing the freight demand and supply balance.

He said that the US truck prices are now a significant barrier to entry, which will continue and serve as a massive factor for capacity.

Trucking stocks have reportedly benefitted from the pricing power and consistent demand.
Arc Best, TFI International, and SAIA have exceeded double the S&P 500 in the third quarter, while XPO Logistics, Knight-Swift, JB Hunt, Hub Group, and others have outperformed the broader index.

References: CNBC, Pehal News

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