It may not be a complete "Happy Thanksgiving" for people who manage 3d party transportation. After some very large decreases in the last few months, the CASS Transportation index decreased again in October. The transportation index dropped 1.4% in October. While this is better than the drop of 2.8% in August and 3.5% in September, it still shows that there is over capacity in the transportation industry.
The Intermodal index rose, YoY for the first time since 2014 by 0.4%. This, I would call a "rounding error". Let's call it flat.
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| Source: CASS Transportation |
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| Source: CASS Transportation |
As I have discussed for many years, there is a fundamental shift in the way freight is moved in the US and I am wondering if even the metrics are wrong? Should we be so tied to this freight index and does this really tell us about the economy? Today, the economy seems to be moving fairly well but transportation continues to decrease. The issues:
- Miniaturization of product
- E-Commerce (reduction of movement of product to stores
- Digitization of product - more product delivered electronically (Books, newspapers, inserts, music etc.).
- Localization of suppliers - This is very interesting because it is a function of transportation costs getting out of control a few years ago. As more finished goods / component mfgs localize, transportation requirements decrease dramatically (Better cube utilization when shipping raw materials v. shipping finished goods or components).
- The Borrowing Economy: I will write more about this and the impact to supply chains but this is real and it is impacting how much we buy. Think about how many items you have that sit and do nothing most of the time. If people start aggregating this in a borrowing economy, the total amount of product bought and shipped will be reduced dramatically.
So, the macro trends fully support this reduction in transportation even though the economy seems to be moving along quite nicely.
