Supply Chain Blog

Good news found 

 

Dear Friends,

What a crazy time since my last post. Social upheaval plus a wild political season is upon us. Despite all of this, the economy continues its snail like progress, improving and creating a slightly better freight market. In what is usually a slow freight season there are signs that things are getting better. Let us look at the numbers. 

Employment ramps up in June after a disappointing spring 

Our nation is resting a little easier after seeing that nonfarm payrolls increased by a seasonally adjusted 287,000 last month in June. The Verizon strike had impacted the earlier jobs report from the Labor Department by 35,000 in May. 

The unemployment rate now stands at 4.9 percent, up from 4.7 percent in May. More people joined the workforce with the participation rate up to 62.7 percent. Including June, second quarter hiring averaged 147,000 jobs per month after having been at 196,000 in the first quarter and 229,000 last year. 

The job report does not take into consideration the still unknown effect of Brexit on the U.S. economy. 

The Labor Department’s June report said factory payrolls rose by 14,000, the largest gain since January. All service sector industries combined leapt up by 256,000 during June, with the only major category to reduce payrolls being transportation and warehousing which fell by 9,400 jobs. The bulk of the losses in transportation were for-hire trucking fell 6,300, transit and ground passenger transportation dropped 6,000 jobs.  

A sign that truckers are adjusting their organizations to the slow freight market, June was the fifth straight monthly decrease in for-hire trucking, totaling 12,600. Year-to-date, motor carrier jobs are off 10,800 after adding 20,900 in 2015. 

A tightening job market has put upward pressure on average hourly earnings as they rose 2.6 percent in June year-over year.  Expect this trend to accelerate as qualified workers become harder to find. 

Consumers find their plastic 

Americans increased their pace of borrowing in May going to their friendly banks and borrowing for school loans and new cars. The Federal Reserve said that outstanding consumer credit, a measure of nonmortgage debt, increased in May by a seasonally adjusted $18.56 billion. 

shoppersRevolving credit card debt rose at a 2.97 percent annual rate in May after being at 1.71 percent in April. Non-revolving credit debt, including student and auto loans, rose at a 7.33 percent annual pace in May compared with April’s 5.47 percent growth rate. 

All of this bodes well for the economy, as consumers feel more comfortable in their jobs and have a little more money in their pockets. The Conference Board reported its consumer-confidence index rose in June to its highest level since October 2015. 

The ISM measure of service industry improves 

The Institute for Supply Management’s (ISM) non-manufacturing purchasing managers index jumped to 56.5 in June from 52.9 in May for the highest reading since November. Any reading above 50 indicates that activity is expanding, while a reading below 50 signals contraction. 

The key components gaining ground included new orders, registering at 59.9 up from 54.2 in May. Employment grew to 52.7 from May’s 49.7. 

The ISM said that their survey of companies said that one-third of service-industry companies thought their business would be negatively or slightly impacted by the United Kingdom’s exit from the European Union known as Brexit. 

The take away from this is that service industries, a large part of the U.S. economy, are improving as we enter into the second half of the year. 

Trade deficit widens 

U.S. trade deficit widened in May, as one would expect from the strong U.S. dollar, weaker economies in Asia and Europe. Exports fell and a pickup in American consumer demand led to more imports of consumer goods and industrial materials with the gap growing 10.1 percent. 

The Commerce Department said this was the biggest gap since August of 2015, which translates to $41.1 billion from April. 

The good news in the report was that the U.S. petroleum deficit fell to $2.9 billion in May, the smallest since February 1999. Oil prices rose $4.71 a barrel during the month for the biggest advance in five years. 

Trucking – Confusing trends 

Let us look at these points: 

  • Truck Sales - After Class 8 truck sales tanked by 40 percent in the first half of the year there was a rebound in June according to ACT Research in its for-hire trucking index. This is the second time this year and the fourth time in nineteen months that demand for Class 8 trucks rose faster than supply.
  • The U.S. Department of Transportation - Demand for freight transportation services fell by 0.3 percent between May 2015 and May 2016. In June, demand for for-hire trucking rose faster than the supply of trucks rose.
  • Less Capacity – Avondale reports that more and larger trucking companies are failing. In the second quarter, 120 trucking companies ceased operations, with an average fleet size of 17 tractor-trailers, according to an analysis by Avondale Partners. That is up more than 70 percent since the second quarter of 2015, when 70 truckers ceased operations, with an average fleet size of 14 big rigs.
  • Truckload pricing is poised for an uptick if the July trend holds – Demand for trucking is increasing with both DAT and Internet Truckstop data showing that demand is greater than supply. DAT dry van contract rates (excluding fuel) are up 1.1 percent in July, year-over-year. Internet Truckstop data shows their Rate and Market Indices are up 3 percent year-over-year.
  • Spot rates jumped – DAT reports that the average dry van rate jumper from $1.62 per mile in the week ending July second to $1.70 per mile in the week ending July 9th. The load-to-truck ratio gained 6 percent for vans for the week, as load posts dropped 19 percent and truck posts declined 24 percent. A 20 percent decline in load board activity is normally expected during a holiday week. The ratio climbed from 3.4 to 3.5 loads per truck, the highest this year, as the national average van rate added 8¢ per mile.  

truckThe take away from all of this is confusing. Perhaps it’s an anomaly that a traditional slow freight market, has somehow spiked? Will we will return to what we have been experiencing earlier in the year? 

Perhaps the combination of large trucking companies cutting back on their fleet size plus smaller companies going out of business, coupled with increased consumer spending, and manufacturing picking up, we are entering a stronger freight market? 

Stay tuned….

LTL companies hold the line on pricing

Publicly held Less-than-truckload companies are seeing strength in contract renewals as they receive increases between 3 and 5 percent. What protects LTL companies in their lack of fragmentation with the top 10 carriers having 77 percent of the LTL market? The top 25 LTL trucking companies have 94 percent of the market. 

This translates to large shippers negotiating flat to small increases in contracts and smaller shippers who are not able to leverage volume paying 3-5 percent more. 

It is worth noting that FedEx Freight has come out with an innovative “flat-rate” called Freight Box, a standard size freight box that requires a pallet to ship, and a smaller freight box with an integrated pallet. No freight classification needed and zone pricing.

Intermodal woes continue 

FTR’s Intermodal Update reported their Intermodal Competitive Index (ICI) measuring competiveness with over-the-road trucking. The index fell 1.2 points in May to a reading of 3.5 for the lowest level since last September. Any reading below zero indicates a less-than-ideal environment for intermodal, while readings above zero communicate relatively favorable conditions. 

FTR says that “while intermodal is not currently experiencing the robust growth to which we have been accustomed, the fundamentals still look solid, with truck capacity expected to tighten as we move into 2017 due to the approaching the federal electronic logging device mandate. Fuel prices are also moving up, which provides some tailwind for intermodal.” 

At Wagner Logistics 

We are enjoying a year of robust growth at Wagner with the organization employing an “all hands on deck” approach. New distribution center projects are in both planning and implementation phases with Kalamazoo operational and Charlotte next up. Other projects are in the works as Wagner’s transportation group takes on more lanes for our customers. 

My compliments to our people who have been in the trenches making these projects open on time and on budget while delivering value to our customers. 

Should you have a new distribution center project or transportation RFP in the works, I hope you will give Wagner a call. With 70 years of experience in logistics we say, Bring It! 

Have a great day, 

John Wagner Jr. 

About Wagner Logistics

 

Wagner Logistics is a leading supply chain management provider offering distribution center, fulfillment and transportation services across the United States.  Current offices include Kalamazoo MI, Charlotte NC, Jacksonville FL, Cleveland OH, Pine Bluff AR, Omaha NE, Dallas TX, Clinton IA, Kansas City MO and KS. Wagner combines high-tech tools with high-touch product pampering to ensure that inventory is where it needs to be, when it’s needed, in the condition customers expect. From product displays to complex fulfillment to vertical supply chains for fragile products, we want to tackle your biggest challenges. 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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