Supply Chain Blog

Stay Calm and Keep a Stiff Upper Lip

 

Dear Friends,

Just returning from the Eye for Transport Chief Supply Chain Officer Forum and 3PL Summit in Chicago, I’m impressed with the talent leading both shippers and 3PLs. There was a lot of focus on technology from business intelligence to augmented reality, drones to autonomous vehicles, and robotics. 

As in the past we are seeing a mix of good and not-so-good news in the economy. The U.K.’s decision to leave the European Union will keep everyone on edge for a while until people sort out the age old question: What does this mean to me? The U.S. economy will survive better than the overseas economies. 

The British decision will strengthen the dollar (bad for exports), weigh on business confidence, and tighten financial conditions as the world’s investors hate uncertainty. Logistics companies with a strong presence abroad will be looking at their European trade networks and U.S. households could see some benefit from cheaper imports and gas prices. 

In the meantime, expect stock market craziness. 

No place like home 

SoldSales of existing homes rose to their highest level in more than nine years and prices climbed fast in May. Sales rose 1.8 percent from April according the National Association of Realtors (NAR) for the strongest pace since 2007. 

Home prices are rising faster than wages locking out a lot of households as the national median price hit $239,700. Existing homes make up 90 percent of the market. NAR expects this pace to continue as home builders cannot keep up with the demand. 

Consumer spending steps up 

Retail sales rose more than expected in May according to a Commerce Department report, as sales increased 0.5 percent after an unrevised 1.3 percent in April. We have a consumer spending trend now moving in the right direction.

 Consumers returned to auto dealers as they bought 0.5 percent more and service stations saw their sales rise 2.1 percent. Other winning categories included apparel, on-line shopping, sporting goods, electronics, appliances, and restaurants. Sellers of garden equipment, building supplies, and furniture were left out of the spending party. 

Inventories balancing 

For many months, pundits and carriers alike have pointed to high inventories at the wholesale and retail levels as being at the root of the freight recession. For the first time in eleven months the total business inventory-to-sales ratio fell in April. The term “total” refers to all manufacturing, wholesale, and retail inventories. 

The Commerce Department said that while business inventories increased 0.1 percent in April following a 0.3 percent gain the month before, these gains were counterbalanced by a 0.9 percent rise in business sales. This had the effect of reducing the business inventory-to-sales down to 1.40 from March’s 1.41. 

Hopefully this is a trend that continues allowing for restocking to take place putting more freight into the market. 

Industrial production dips 

The Federal Reserve announced that everything made by U.S. factories, mines, and utilities fell in May. Industrial production fell a seasonally adjusted 0.4 percent reflecting lower auto production and general manufacturing. 

The mining sector has been under fire by the EPA and lower energy costs have dampened the oil and gas industries. The strong dollar coupled with economic unrest in Europe and Asia also provides significant headwinds. Factory activity is off 0.1 percent year-over-year. 

There is ample capacity available as it currently sits 74.9 percent, down 5.1 percent below the historical average. 

Big ticket items lagging 

May orders for non-military capital goods excluding the volatile aircraft industry fell 0.7 percent after dipping 0.4 percent in April.  The Commerce Department also said that durable goods (products intended to last 3+ years) fell 2.2 percent.  

With the international confusion over what Brexit means to larger manufacturers look for restrained production until a clear path is better known. 

Fixing America’s Surface Transportation (FAST) Act highway bill 

Looking into what the causes are for delays in loading and unloading, the DOT Inspector General has initiated an audit pursuant to the FAST act. The Federal Motor Carrier Safety Administration will be looking into the root causes and collecting data on loading and unloading delays which take driving hours away from truck operators. 

The act directs DOT to report on the impact of loading and unloading delays in areas such as the economy and efficiency of the transportation system. If a driver with 14 hours is delayed and tries to make up that time driving faster, then a safety issue exists.

Freight improves – a little 

The American Trucking Associations (ATA) reports that May truck tonnage grew 5.7 percent on a year-over-year basis. The ATA advanced seasonality adjusted index rose to a 139 reading, 2.7 percent over April. 

Better consumer spending is attributed to moving the index which has been stuck in the mud for months. Declining inventories are helping as well. 

TruckAffirming the ATA numbers, the Cass Freight Index showed a rise of 1.3 percent in May over April. The index is down however by 5.8 percent year-over-year.  

LTL carriers are reporting a continued soft freight market as LTL tonnage declined 3.1 percent in the first quarter and haven’t recovered much from there. This segment should improve somewhat when the second quarter numbers are released. Pricing discipline seems to be holding for the LTL carriers. 

The CSCMP annual State of Logistics report  

The study said total U.S. business logistics spending grew by 2.6 percent in 2015 to $1.41 trillion. Logistics as a proportion of U.S. gross domestic product continued its slow decline to 7.85 percent in 2015 from 7.91 percent in 2014 and 7.93 percent the year before.

The report points out that market forces are at work to reduce carrier capacity and that by 2017 there will be 80,000 fewer trucks. Carrier bankruptcies and larger carriers reducing fleet size will create a stronger freight market for the survivors in 2017. 

Still the transportation sector grew revenue:

  • Parcel +8 percent
  • LTL +7 percent
  • Truckload +3 percent
  • Dedicated +1 percent
  • Rail intermodal +2 percent
  • Rail carloads -12 percent 

The Panama Canal is open for business 

A COSCO container ship worked its way through the locks last weekend and the debate continues over how the canal will affect the east coast ports versus the west coast ports. 

The Port of Los Angeles had its busiest May ever with growing import volumes and a slight uptick in exports. The nation’s largest port imported 400,766 loaded 20-foot equivalent units, or TEU’s, a standard measure for container cargo, last month, a 15 percent improvement over May 2015. 

East coast and gulf coast ports are anxiously awaiting the bigger ships passing through the canal, we will wait to see what the actual effect is. Meanwhile steamship lines are suffering from low rates and taking ships out of service. 

Railroad woes continue 

The Association of American Railroads (AAR) announced that a 6.3 percent decrease in carloads and intermodal units were handled in the week ending June 18th in a year-over-year comparison. Total carloads for the week fell 8.5 percent while weekly intermodal volume dropped 4.2 percent compared with the same week in 2015. 

Total combined U.S. traffic for the first 24 weeks of 2016 was 11,952,867 carloads and intermodal units, a decrease of 8 percent compared with traffic during the same period a year ago. 

With soft volume, the railroads have little choice but to focus on what is in their control such as safety, service, and productivity along with headcount reduction and fleet downsizing to help offset the margin pressure created by reduced network volumes. 

At Wagner 

We are off to a busy summer at Wagner moving into a larger Kansas facility and adding locations in Michigan and North Carolina. We are also gearing up for a large retail pallet display fulfillment project that will need a lot of planning. 

Wagner’s transportation group is engaged and having success moving loads for our clients nationwide. The soft freight market has pushed transportation pricing lower for now. 

Should you have a change in your distribution network and thinking about adding a distribution center or two, please invite Wagner to the party. If you have an upcoming transportation RFP we’d love to swing our bat. With 70 years of experience in logistics we say Bring It! 

Have a great day,

John Wagner Jr.

About Wagner Logistics

Wagner Logistics has been honored 15 years in a row by Inbound Logistics as a Top 100 3PL provider, we offer dedicated warehousing, transportation management, packaging and assembly operations across the United States with over 3,000,000 sq. ft. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dallas, TX, Omaha, NE, Clinton, IA, Kalamazoo, MI, Edgerton, KS, and Kansas City MO and KS. We provide genuine customer service to our customers and our superior onboarding process will make your customer’s transition seamless. We work tirelessly to find innovative solutions to reduce supply chain costs while increasing your speed-to-market with our award winning technology. 

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