Following up on Craig Fuller’s call in March, the CEO of FreightWaves, that the transportation industry was headed for a recession, Cass Freight’s April shipments index out yesterday showed a 2.6% fall from March and down .5% y/o/y. They said “Freight was slowing even before the war in Europe again, but the effects of the additional surge of inflation and recent interest rate increases seem to have pushed volumes over the edge. After a nearly two year cycle of surging freight volumes, the freight cycle has downshifted with a thud. It’s possible the April data include some indirect impact from lockdowns in China, but with container ship backlogs still off North American ports, the direct effects on finished goods imports seem more likely in the June/July timeframe.”
And their bottom line, “The prospect of freight recession is now considerable, as substitution from goods back to services spending picks up pace, and as inflation slows overall spending, particularly via higher fuel prices and by pressing up interest rates.” I also don’t want to discount the impact of China here as much less stuff is getting shipped to the US out of their ports.
Their implied freight rate calculation saw a still robust 31% y/o/y from 32% seen in March. Prices did rise 1.5% m/o/m “but this was likely mainly on fuel surcharges.” As spot rates are falling sharply, Cass Freight is forecasting “significant deceleration in the next 6 months, even assuming higher fuel costs persist.”
Speaking of FreightWaves, they said yesterday “Over the past four days, the deterioration in truckload van spot rates has accelerated” and “The acceleration in the rate of decline is remarkable, especially considering the time of year. May and June are normally considered among the busiest times of year for truckload volumes and the early summer months rival the holiday retail season in terms of peak spot rates.” I wish we can determine how much of this is due to China supply problems and how much due to the natural downshift in spending on goods.
Also yesterday, the CEO of Hapag Lloyd, the big container shipping company, said with respect to their earnings report, “The world economy is weakening, we notice that in the day to day.” I’ll say again that Europe is most likely already in a recession.
Shifting to housing and the growing affordability challenge, the NAHB yesterday issued a report titled “Home Builders Warn of Significant Affordability Declines.” Their affordability index based on where the housing market stands today is at “just 48.7% of homes sold in the first quarter were affordable to median income families, the lowest affordability level recorded on the Housing Opportunity Index since the beginning of the revised series in the first quarter of 2012.” One does not have to have taken Economics 101 to know that combining a 13 yr high in mortgage rates on top of homes that are 15-20% more expensive than a year ago is going to price out a lot of people, even with the wage growth we’ve seen.
More evidence that those who think inflation will just collapse from here will be wrong and instead will remain sticky, which I keep arguing, Bloomberg is reporting that Samsung Electronics is talking with foundry clients about charging as much as 20% more for making semiconductors this year…according to people familiar with the matter…New pricing would be applied from the 2nd half of this year, and Samsung has finished negotiating with some clients, while it is still in discussions with others.”
The direct impact of China’s maniacal approach to covid was seen in their April loan data. Aggregate financing totaled 910b yuan, less than half the estimate of 2.2T yuan and the lowest since February 2020, the last time they shut down like this. Bank loans were only 645b vs the estimate of 1.53T. Of course none of this is a surprise when some people’s front doors are bolted shut. I’ll say again, the Chinese citizenry and the rest of the world certainly needs this covid stance to end for the sake of the world’s economy. Chinese stocks did rally, led by the H share index in Hong Kong which was up 3.2%. The yuan is higher after the recent weakness.