U.S. Bank reports declining freight payments in 1Q; Southeast shipments soar

unidentified truck on road

U.S. Bancorp’s (NYSE: USB) Freight Payment Indexes, which track shipments and spending, moved lower during the first quarter of 2020 compared to the fourth quarter of 2019.

From the report: “Despite the strong movement of consumer staples during the second half of March, both the shipment and spend indexes contracted from Q4 2019.”

The shipments index increased 3.8% year-over-year in the first quarter but moved 1.8% lower compared to the fourth quarter of 2019. The report noted that shelter-in-place mandates in most states resulted in strong demand for grocery and household supplies. Further, “binge buying” created short-term shortages for some household items throughout the supply chain, sending shipments higher while shipments in sectors like restaurant and automotive were significantly reduced or canceled.

U.S. Bank Freight Payment Index – Shipments (National)

The report attributed the year-over-year increase in shipments to an easy comparison from the 2019 period, which was plagued with worse-than-normal winter weather, causing lost operating days at many trucking terminals throughout the country. The first quarter of 2019 was also representative of a post-peak freight market that had already cooled significantly.  

The U.S. Bank National Spend Index declined 2.5% year-over-year and was down 3.7% compared to the fourth quarter. The report cites “lower volumes, falling freight rates and lower fuel prices” as the culprits.

U.S. Bank Freight Payment Index – Spend (National)

“As we move into Q2, we’ll see places reopening, but we have no definition yet of impacts,” said Bobby Holland, U.S. Bank vice president and director of Freight Data Solutions. “Supply chains may be further stressed, or things may improve. We do know it will be challenging. The economy is expected to take a hit, and we’ll see the effects into the second quarter as supply chains continue to catch up.”

Southeast outperformed; the West lagged

The Freight Payment Index soared in the Southeast region, with shipments increasing 24% year-over-year, up 10.5% sequentially from the fourth quarter. The first-quarter level was a record high for the index. The report indicated that this was due in part to a later implementation of stay-at-home orders than most of the country and the assertion that this region’s supply chains are better prepared to respond to disasters like hurricanes.

Spend in the Southeast increased 12.6% year-over-year and was up 5.5% from the fourth quarter. Lower diesel fuel prices, a 17.6-cents-per-gallon average decline sequentially from the fourth quarter, were cited as a reason the spend increase wasn’t higher.

The West region saw the largest degradation in metrics during the quarter. The shipments index was down 11.8% year-over-year and 14.5% sequentially. The report stated that the region, heavily reliant on international trade with China, suffered from continued trade conflict and the closure of Chinese manufacturing as the country was the first to be impacted by the outbreak. With lower inbound container traffic to the U.S. West Coast, truck loads were “severely impacted.” Additionally, the West region was the first region in the U.S. to combat the COVID-19 outbreak, slowing their economies early on.

U.S. Customs Maritime Import Shipments (Los Angeles) – SONAR: CSTM.LAX

Spend in the West region was 7.2% lower year-over-year, 10.4% lower than the fourth quarter.

The Northeast region saw shipments decline 4.3% year-over-year, down 6.9% sequentially. Inbound demand for consumer-related “COVID-19 stockpiling” was robust, but fewer backhaul opportunities weighed on shipments.

The Midwest region continues to be hampered by lower agricultural exports. In the quarter, all major automotive original equipment manufacturers (OEMs) had idled production by mid-March. The region’s shipments index increased 0.6% year-over-year, but declined 2.3% sequentially. Spend in the region was down 7.3% year-over-year and 5.8% sequentially.

Adjacency to the West and weak energy prices, notably oil prices, were listed as reasons for shipment declines of 1.2% year-over-year and 4.1% sequentially for the Southwest region. The precipitous declines in oil prices this year have curbed production from the shales, leading to declines in truck freight.

“As we approach the second quarter with some known and potentially new challenges, we anticipate that both indicators [shipments and spend] could continue to contract significantly. Trucking operators in the grocery store and online retail supply chains should outperform most other sectors. But in general, with businesses closed, and most people ordered to stay at home, spending will likely plummet and a continued drop in freight will likely be the result during the second quarter.”

U.S. Bank processes more than $28.8 billion in freight payments annually for its corporate and government clients. The bank publishes its Freight Payment Index quarterly. It comprises shipping volumes and spending both regionally and nationally. The data represents payment activity generated from truckload and less-than-truckload transactions, the largest modes the bank services.

Commentary provided in the report is from American Trucking Associations Senior Vice President and Chief Economist Bob Costello.