Winter weather and capacity issues drive down Q1 U.S. Bank Freight Payment Index

While 2020 finished strong, with solid sequential and annual gains for freight shipment and spending levels over the third and fourth quarters, the first quarter of 2021 did not keep that momentum going, according to the most recent edition of the U.S. Bank Freight Payment Index, which was recently released by Minneapolis-based U.S. Bank.

This report, which was initially launched in the third quarter of 2017, is comprised of data on freight shipping volumes and spend on both a national and regional basis. The report’s data is based on the actual transaction payment date, highest-volume domestic freight modes of truckload and less-than-truckload and is seasonally- and calendar-adjusted. Its historical data goes back to 2010, with a base point of 100, and its index point for each subsequent quarter marks that quarter’s volume in relation to the preceding quarter. U.S. Bank Freight Payment processes more than $28.8 billion in global freight payments for U.S. Bank’s corporate and federal government clients.

The report’s shipments index value—at 117.5—was off 8.3% compared to the fourth quarter of 2020, and it was off 5.4% annually. On the spend side, the first quarter reading—at 212.2—was off 4.7% compared to the fourth quarter of 2020 while increasing 12.8% annually.

In the report, American Trucking Associations (ATA) Chief Economist Bob Costello wrote that the national truck freight market softened in the first quarter, which he said is not unusual, given that freight volumes are usually slower than compared to the fourth quarter.

“Severe weather across the country during February 2021 put additional stress on supply chains, resulting in factories being closed and people unable to work,” wrote Costello. “Many supply chains were also impacted by input shortages during the quarter, with microchips being the most notable example. Freight spending slipped compared to a gain in the fourth quarter. Freight spending slipped compared to a gain in the fourth quarter. Despite the quarter-to-quarter drop in the spend index, the truck market remained very tight because the level of spending stayed high and increased from a year earlier. Household spending power is strong heading into the spring and summer as much of the population received the government stimulus. Additionally, household savings are up significantly over the past year. Factory output is expected to increase, and home construction should remain strong, both leading to rising freight volumes on top of solid retail sales.”

Looking at shipments, the report explained that the 8.3% sequential decline over the first quarter came on the heels of a cumulative 11.3% sequential gain over the third and fourth quarters of 2020. Among the reasons cited for the first quarter decline were severe winter weather impacts to construction, retail, factory output, and energy production, coupled with supply chain shortages. And in looking at historical data, the report’s shipment index has fallen in nine of 11 years, with the nine declines averaging out at 4.2%.

On the spending side, the report said that the 4.7% sequential decline was more in line with historical trends on the heels of a cumulative 37.2% increase over the third and fourth quarters of 2020.

And it said that the first quarter winter storms impacted shipments and led to a lack of available truck capacity, which, in turn, led to higher rates, and subsequently raised the spend index relative to shipments. The report also said that diesel prices shot up over the course of the first quarter, which led to higher spending as fuel surcharges are part of the index calculations.

On a regional basis, the report stated that first quarter shipments were down on a sequential basis, with the West down 10.2%, Southwest down 6.4%, Midwest down 10.9%, Northeast down 5.8%, and Southeast down 5.8%. Annually, shipments were up 2.8% out West, down 3.2% in the Southwest, down 9.8% in the Midwest, down 15.2% in the Southeast, and down 2.5% in the Northeast.

On the spending side, the report stated that first quarter spend saw declines on a sequential basis, with the West down 12.6%, Southwest down 4.0%, Midwest down 2.4%, Northeast down 3.0%, and Southeast up 3.1%. Annually, spend levels were up 23% out West, up 4.8% in the Southwest, up 9.0% in the Midwest, up 11.2% in the Southeast, and up 9.1% in the Northeast.

U.S. Bank Freight Data Solutions Director Bobby Holland said in an interview that the harsh winter weather occurring in places where it is atypical, like Texas, was a factor in shipment declines.

“The annual decline was kind of a surprise, with regional shipment levels down across the country,” said. “And it is the comparison of a time where we are coming out of lockdown across the country in some fashion or another…but it is also an indication of how high things were running in 2018 and 2019. Even though shipments are down, they are down from high levels. By comparison, we are coming out of a slump this year, and the expectation is that things will improve as the year goes on, with fewer Covid lockdowns and we get past the weather issues.”

As for freight spend, he said the 12.8% annual gain speaks to how shippers had to spend more to move goods into and out of areas that were shut down due to Covid and get creative about how they got their goods moved, at a time when carriers were able to charge more.

And he pointed out that is against the backdrop of the ongoing truck driver shortage, as evidenced by a U.S. Department of Labor statistic featured in the report that for-hire trucking employment was down by 40,000 workers in the first quarter on an annual basis. This marked a steeper decline than transportation services and warehousing employment, in addition to construction, a major labor competitor for trucking.

“The pandemic did not help that, considering the time needed to train drivers and get them licensed,” he said. “There were also the semiconductor shortages that were affecting truck deliveries. It was like a perfect storm of all these things piling on and basically drove spending up, making it cost a lot more to ship lower volumes.”

With more people getting vaccinated and the weather improving, Holland said that improvements in market conditions are expected, as well as more Covid restrictions being lifted in various parts of the U.S. Strong retail sales are expected to remain on that same path, too, he added.