Cass Freight Index Shows Shipments Remain Steady
RedStone Resource
July 19, 2022
Inside This Edition
China’s Yuan Hits Lowest Levels Against the Dollar Since 2008
The June Supply Chain Pressures Index produced by the New York Federal Reserve still came in hot for June, despite some slight deceleration from May levels. The reopening of China in June helped ease some of the supply chain pressures and that helped bring the index down slightly from 2.6 to 2.4
Cass Freight Index Shows Shipments Remain Steady
The Cass Freight Index for June showed a familiar story that is playing out in other metrics, slight deceleration month-over-month but year-over-year performance that remains near historic highs. The Freight Shipments Index were still 23.9% higher on a two-year stacked basis but slipped 2.6% month-over-month.
Oil Prices Dip, But Will it Last?
Oil prices have softened in the middle of July largely due to speculation that the global economy is slowing. Prices for West Texas Intermediate (WTI) slipped from $105 a barrel to $97.88 a barrel in 7 days. But does this mean that prices will remain lower or continue to fall? The Energy Information Administration is now forecasting that oil will average $98.79 in 2022 and slip to $89.75 in 2023 as slightly more production comes online next year.
ECONOMIC BRIEFING
No Signs of Inflation Cooling in Latest Data
For the broader economy, inflationary pressures continue to climb at both the consumer and producer levels. The headline Consumer Price Index (CPI) came in at 9.1% and when stripping out food and fuel, the so-called core CPI was 5.9%. The Federal Reserve’s target rate is 2% and it will continue to increase interest rates to try and tame inflation (by killing demand and slowing the economy).
Producer prices (PPI) came in even hotter with top line inflation running a scorching 11.1%.
For transportation, the PPI also covers the three primary modes of LTL, TL, and rail and each showed strong year-over-year increases (these prices include spot, contract, and fuel surcharges) with each rising 20.6%, 30.0%, and 11.1% Y/Y respectively.
Other commodity categories have also been slow to show any price adjustments. Finished goods used in construction (steel beams, plumbing, wiring, etc.) were not showing significant price deceleration yet, despite prices for some raw inputs (copper, aluminum, nickel, etc.) dropping significantly from their peaks earlier this year but remaining strong on a year-over-year basis.
Global Supply Chain Pressures Index Continues to Remain Historically High
The June Supply Chain Pressures Index produced by the New York Federal Reserve still came in hot for June, despite some slight deceleration from May levels. The reopening of China in June helped ease some of the supply chain pressures and that helped bring the index down slightly from 2.6 to 2.4 (the index represents how far the average score is deviating from what would normally be a “balanced” market). In this case, the score remains near the top of its historic 25-year range, but directionally it showed that conditions might have been improving for supply chain managers slightly.
When the July data is collected, that could change. New lockdowns in China could change the flow of goods, which would push supply chain pressures higher. That would be reflected in later data. But conditions are improving in other parts of the world as sluggish export demand starts to filter through too many markets. The US is still experiencing near record inbound volumes and US ports remain busy.
TRANSPORTATION BRIEFING
Cass Freight Index Shows Shipments Remain Steady
The Cass Freight Index for June showed a familiar story that is playing out in other metrics, slight deceleration month-over-month but year-over-year performance that remains near historic highs. The Freight Shipments Index were still 23.9% higher on a two-year stacked basis but slipped 2.6% month-over-month. Expenditures continue to remain historically high, rising by 25% year-over-year and 8.8% month-over-month. Inferred freight rates were 27.9% higher year-over-year and 11.7% higher month-over-month.
The US distribution system is being pushed and pulled by various factors. Some pockets of the country are experiencing significant capacity shortages (primarily in port regions and areas going through harvest season), while others are seeing strong capacity availability. Truckers specifically are trying to reduce as many empty miles as possible and are being selective on which loads, they will take, depending on the likelihood of getting a return backhaul trip to help cover diesel costs. This is keeping the national capacity and distribution system off-balance, which is primarily why prices are not adjusting perhaps as fast as they should given some slight softening in shipment demand.
Oil Prices Dip, But Will it Last?
Oil prices have softened in the middle of July largely due to speculation that the global economy is slowing. Prices for West Texas Intermediate (WTI) slipped from $105 a barrel to $97.88 a barrel in 7 days. But does this mean that prices will remain lower or continue to fall? The Energy Information Administration is now forecasting that oil will average $98.79 in 2022 and slip to $89.75 in 2023 as slightly more production comes online next year.
There remains a tremendous amount of volatility in oil supply. It is far more difficult to bring on new supply, but risk to production and distribution is much higher given the war in Ukraine and uncertainties with sanctions imposed on Russia in the process. In other words, the risk is more heavily weighted to the upside for oil prices. For prices to fall substantially, an unexpected end to sanctions or a drop-off in demand would have to be at work in order to improve global oil inventories.
The impact on diesel prices is largely unchanged. Constraints in refining capacity and risks to refining infrastructure are more likely to push prices higher in the near term. There have been 4 accidents at various types of refineries in the last thirty days, two of which sustained long-term damage and recovery will be slow. Thankfully, the diesel refining sector throughout the Gulf region has been spared any major hurricane activity thus far in 2022.
