Economic Update: The Q4 2019 Freight Payment Index

If you’ve been a long time follower and reader of the Buyers Meeting Point blog, you know that economics is a key part of the coverage we provide. As the Business Survey Chair for the ISM-New York Report on Business, I have the responsibility for taking the monthly surveys completed by purchasing managers in the New York Metro area and interpreting them, looking for insights and trends on demand for professional services. This report, along with the other regional and the national ISM manufacturing and non-manufacturing reports, are often based on data collected for one purpose and then leveraged for another.

The same is true of the U.S. Bank Freight Payment Index. In 2019, U.S. Bank processed $28.8 billion in freight payment transactions. Those payments and the data that accompanies them are analyzed by the Freight Data Solutions team at U.S. Bank. The FPI report is released quarterly, and includes quarter over quarter, year over year, and full year data and analysis.

Just as with the ISM reports, the FPI looks at trends over time, comparing the results from one period to another. Its purpose is to provide insight into the ups and downs, not necessarily a momentary snapshot, of conditions in the freight industry.

Below are some of the key numbers from the Q4 report, but if you are interested in discussion based coverage you can check out Supply Chain Now’s live (available on demand) streaming interview with Bobby Holland, VP/Director of Freight Data Solutions team at U.S. Bank, and Michelle Livingstone, VP of Transportation at The Home Depot. They discuss the implications of the report nationally, regionally, and in related markets, such as new home construction. There is also an accompanying podcast you can listen to here.

As Michelle explains in the interview, business activity in the freight sector has long been recognized as a leading indicator for the economy as a whole, but it is also cyclical. 2018 may have been an anomaly, as carriers and warehouse managers spiked their capacity in order to meet demand. Now they are left with underutilized resources, leading to a softer end of 2019. 

With a quarterly report, it is also important to recognize the impact of time delays. For instance, in the three months covered by the Q4 report, manufacturing and agriculture faced significant uncertainty due to tariffs and trade negotiations, conditions that are no longer static with yesterday’s signing of the USMCA trade agreement by President Trump. We will have to wait to see whether conditions change in Q1 2020, and what that suggests for the remainder of the year.

General Quarterly Observations:

• Shipments went down 4% on a quarterly basis
• Spend was down 2.7% on a quarterly basis
• Big factor: decline in economic activity resulting from trade tensions, tariff anticipation, and irregular trade volumes disrupting freight movement.

Key Items:

• In yearly data, 2019 shipments down 5.9% from 2018, largest annual drop since 2011
• In yearly data, 2019 spending up 3.4% from 2018
• Falling manufacturing activity is having large impact on shipments and spend
• Lower contract rates & low spot market pricing negatively impacting spend
• Freight levels will likely remain sluggish through Q2 of 2020, but due to capacity constraints (fewer truck purchases; carrier closures), shipments could pick up second half of the year

Regional Data shows:

• Southeast: Saw a relatively small decline in shipment index at a 1.6% decline with a surge in spend at 12.6% (For full year, 2019)
• West: Shipments down only 2.6%, with spend increasing 6.4% (For full year, 2019)
• Midwest: Q4 2019 saw shipments fall 5.4%, as well as a 3% spend contraction compared to Q3 2019.