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Freight Shipments Plummet as Inventory Glut Bites
The transportation sector just keeps getting worse. Even after today’s uptick, the Dow Jones Transportation Average is back where it was in April 2014, and down 18% from its peak a year ago. Within this transportation sector is freight, a gauge of the goods-based economy, which is having a rough time.
In November, the number of freight shipments in North America plunged 5.1% from a year ago, according to the Cass Freight Index. It hit the worst level for any November since 2011.
The index is based on $28 billion in freight transactions processed by Cass on behalf of its client base of “hundreds of large shippers,” Cass explains. It covers shipments, regardless of the mode of transportation, including shipments by truck and rail. It does not cover bulk commodities. Shippers include companies in consumer packaged goods, food, automotive, chemical, OEM, heavy equipment, and retail.
This index of shipment volume has been lower year-over-year every month, with the exception of January and February, which makes for an increasingly awful looking year:

Reasons for these lousy shipment volumes are spread throughout the economy, including a litany of big retailers that have come forward with crummy results and disappointing projections.
Yesterday it was Dallas-based Neiman Marcus, which caters to luxury shoppers. It reported its first quarterly sales decline since 2009, down 1.8% from a year ago, with same-store sales down 5.6%. It booked a loss and laid off 500 people. As so many times, there’s a private-equity angle to it: Subject of an LBO in 2005, it’s now owned by Ares Capital and the Canadian Pension Plan Investment Board. They were hoping to make a bundle via an IPO. But now the IPO has been put on hold.
CEO Karen Katz blamed the oil and gas fiasco. Its customers in Texas run and own companies in the depressed energy sector, or they receive royalty checks. Alas… “Business conditions were quite challenging,” Katz said. She also blamed the “strong dollar” that prevented foreign tourists from splurging at its stores in the gateway cities Honolulu, San Francisco, Las Vegas, New York, Washington, and Miam.
This follows the disastrous results at Men’s Wearhouse, which blamed its misbegotten foray into M&A. At the company it acquired, Jos. A Banks, same-store sales plunged 14.6%.
Retailers are also lamenting their high inventories. But not just retailers. Total business inventories across the country have piled up to suffocating levels. Given lackluster sales, the crucial inventory-to-sales ratio, which measures inventory turnover, has reached 1.38, worse than it had been in October 2009 during the Financial Crisis:

And Cass issued a warning about this inventory glut:
The Federal Reserve has held back from raising interest rates, but is expected to announce higher rates in December. This will negatively affect those companies holding record high inventories, as carrying costs will begin to rise more rapidly.
So companies are trying to whittle down their inventories, and since it’s not happening via booming sales, they’re cutting orders. Shipment volume follows. And the Cass index for shipments, including rail and trucking, has been taking a drubbing in November – particularly among railroads. Cass:
The Association of American Railroads reported a drop of 7.4% and 6.0% in carloads carried and intermodal [containers], respectively.
The drop in intermodal reflects the high inventory levels faced by retailers and wholesalers and is more reflective of the goods included in the Cass Freight Shipments Index.
Much of the carload loss is due to drops in bulk commodities such as coal, petroleum products and metallic ores—products not as well represented in the Cass data.
Cass summarized the situation in the economy as it impacts transportation this way:
Imports have slowed down considerably as retailers and wholesalers have ample supply for the holiday season. The November Institute for Supply Management’s Purchasing Manager’s Index (PMI) declined almost 3%, while production was down 7%, new orders off 7.6%, and order backlog increasing 1.2%. For the first time since August 2012, the PMI Production Index has dropped to a level indicating that it is contracting.
And so the index for freight expenditures, which tracks the money spent on shipping products, plunged 9.1% in November from a year ago, on a combination of lower volumes and lower shipping rates. Except for January and February, the index has been lower year-over-year every month.

And December is going to be even worse: “Expect freight to erode in December following established seasonal trends,” Cass said to soothe our frayed nerves.
Retailers of all kinds in once booming Texas, not just luxury-focused Neiman Marcus, are getting hit as Oil Bust Contagion spreads into the broader economy. Read… Retail Sales in Texas Plunge
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none of this is true. amazon is trading at 950 times earnings. everything is great!.
Is the Drone Index plummeting too?
the rich aren\t buying it now we're totally screwed, what do you think makes up 90% of the service industry, hamburger flippers? its maids and masseuse and landscape engineers and pool boys and valet parking
I think you denigrate landscape engineers. They need a degree, hamburger flippers, probably not.
By destroying the middle class, most folks don't have any money left to buy things. After all, how many refrigerators and ovens, etc., will a billionaire purchase? Not enough, that's for sure.
i might think the staff at the billionaires home might get a new refrigerator for christmas, or maybe they can recycle the old one. the rich aren't losing money they're just being stingy guts, and for that the rest of us have to sell pencils on a street corner, not fair i say
Are oil and gas tankers part of that equation?
If they are, I'd like to see freight volume after they are subtracted.
Impoverished consumers fight back, maybe??
unimpoverished consumers are not fighting back therein lies the problem
You ain't fighting much when you're out of ammo.
bankruptcy for $899 (i saw it on a automobile sign ad) but who can afford it. i can get a nice flat screen TV for the same amount of money
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Quick! Hurry everybody, take your worthless fiat paper out of the bank and use it to buy silver plated pot metal at bargain prices.
Baltic Dry Index sank to record depths (484)
Truck loadings running off the road
Rail car loadings off the rails
Fortunately, all of this is meaningless, because stawks are green and keep levitating like Criss Angel.
The container shipping price is so low that scrap steel is being shipped in containers rather than bulk. Stocks will reflect reality after Holidays when Fed forced to lower interest rates.
FED...always the wrong decisions.
Harpex is down to 366, its all time low was 275.
Of course Karen Katz. All those gateway cities listed have a NM in them, but it's the foreign tourists who can't spend money, that's gotta be the reason. It can't be because the eCONomy is in the shitter.
Solid reporting and data points. Thanks for the information which is also supported by the BDI hitting a record low today of 484 (over the past five years). Doesn't really matter what is being transported these days, from energy (oil, coal, etc.) to base materials to finished goods to autos to you name it, nothing is really moving. Just too much "stuff" available for sale ranging from a record glut of oil to clothes on the retailer shelves.
But a couple/three additional observations to digest as it relates to the current economic environment:
- I have no doubt that the oil belt is beginning to suffer as the entire food/money chain is feeling the pain. But the problems with brick and mortar retail go well beyond the energy sector/region as the entire industry is being challenged by new, innovative, and more efficient sales models that are erording sales at all levels. Ecommerce and direct to consumer businesses are offering better pricing, better selection, proven delivery reliability, all packaged in a more convienent shopping experience. The speed of the change in consumer retail is remarkable to watch.
- For the past year, MSM constantly harps on the benefits of lower oil and gas prices (via the consumer having more disposal income to spend). What they've failed to mention is cost increases in other sectors that have consumed any and all excess savings from lower oil prices. I'm talking about the triple H's of housing, healthcare, and higher education. Without question, housing and healthcare cost increases (two necessities) are hammering consumers and sucking earnings like never before.
- There's no doubt in my mind that the reckless policies of the Fed and other CBs has resulted in significant mal-investment across numerous industries including energy, mining/base materials, shipping/transport, heavy industry, etc. The collapse in commodity prices and the movement of the materials speaks to this. But this mal-investment extends throughout the entire foodchain up to and including consumer products that are sitting on the shelf of retailers. If it doesn't really cost anything to finance the inventory, retailers will get sloppy with properly managing inventory/merchandise levels. The elevated inventory to sales ratio speaks to this which of course is a double whammy for the retailers. First, they now may have to pay higher carrying costs. Second, look for inventory write-downs and write-offs to accelerate as too much inventory indicates that valuation hits are bound to happen.
One final point and a situation that I think about and digest every day is whether the economy can survive and even grow moving from a products/goods based model to a service based model (including healthcare, software, etc.). One in which consumption of tangible goods/products gives way to consumption of intangible services or "life experiences". Some of this change is by choice such as consumers becoming more environmentally responsible and consuming less. And some by force such as healthcare being crammed down on individuals in America. Not sure how this plays out and if the transition can be made but one thing is for sure. A restructuring in the economy of this magnitude will no doubt be very painful and result in some serious winners and losers along what I'm sure will be a very bumpy road.
Any thoughts on the service based versus product based economic transformation would be welcome.
To paraphrase Winston Churchill, a service economy is the glittering scum which floats on top of the broad river of production.
Dry up the river of production and what is left? A festering swamp.
Services are luxuries. Production is necessity.
To suppose that one can replace the other is an illusion. We haven't stopped buying produced goods, just stopped making them. The net result is a continuous drain. No matter how nice our lawn guy keeps the grass.
WOW ... Winston Churchill was a visionary ahead of his time. All of this fiscal manipulation has created markets where everything is broken and no longer makes sense. Anyone ever read "Pilgrims Progress"? I kind of reminds me of the 'swamp of despond'. A lot of great images on the web where 'swamp of despond' is illustrated.
Whether is si Churchill of John Bunyan, we are doomed to repeat history out of ignorance. Quoting the Bible: Hosea 4.6
"My people are destroyed for a lack of knowledge". Enough said.
Haven't read Bunyan in a very long time. I should probably brush up.
About as near perfection a reply as could have been asked for. You hit it outta the park.
We need to make stuff.
How can an economy work, if it does not contain elements producing products that people need? Taking raw materials, and creating value?
How?
Dumbass,
There's a derivative for that....DUH!
You don't have to ACTUALLY make the stuff anymore.
You just get paid, as if you did.
Christ! If you ACTUALLY made the thing, you'd be left with dick squat after EBITDA.
Capiche?
And don't forget the ever increasing debt loads of over-extended consumers due to increasing rents, college loans, auto loans, etc. Most people are tapped out and are hunkering down. The dairy industry here in NZ has totally collapsed in the past 12 months and the effects are flowing through the rest of the economy.
Good article. Very true but unnoticed by the 'everything is awesome' MSM.
I know a retailer/manager who relocated to a department store outside of Houston and she said sales are dismal.
The real world once again rears its ugly head and Wall St ignores it all. We're just so friggin' doomed......
We are still a few months away from peak glut.