Supply Chain Blog

Fall Season Brings Uncertainty

 

Dear Friends,

There are conflicting statistics abound as we approach October. I am asking, “Where is our nation’s economy heading?” How will that affect our nations supply chains? Let us look at some numbers and see where we are as we enter the fall season. 

Incomes rise 

Families saw the first real increase in eight years as the median household income rose 5.2 percent from last year according to the Census Bureau. This is still 1.6 percent below when the recession started in 2007 but it shows good progress in the right direction.

 The largest increases were found in the bottom fifth of households while the top fifth slightly declined. Women saw bigger gains than men with an annual increase of 2.7 percent and men seeing a 1.5 percent rise. 

Services rating falls 

The Institute for Supply Management’s (ISM) non-manufacturing index unexpectedly dropped to an August reading of 51.4 from July’s 55.0. While a surprise, it is still in positive territory as its above 50.0 signifying expansion. This index looks at construction, retail, health care and other service related industries. 

A steep drop in business activity and new orders signify an August slow down. Eleven non-manufacturing industries surveyed reported growth and seven experienced contraction.

 One month does not make a trend so it is good to remember that this index has been above 50 for 79 straight months. 

On a broader look, the Commerce Department said our nation’s gross domestic product (GDP) grew at a slow 1.1 percent annual rate in the second quarter coming off a 0.8 percent growth rate in the first quarter. Third quarter growth is expected to be at least 3 percent. 

Manufacturing dips 

After stabilizing this spring, manufacturing contracted in August as the ISM index of manufacturing activity came in at a reading of 49.4. This is the first negative reading since February. 

Manufacturing has been under stress for a long time under the weight of a strong dollar making exports expensive to overseas buyers. With a rebound in consumer spending this spring, manufacturing was bouncing along barely above 50.0. 

The slow growth economy is now dependent on consumer spending to keep it afloat and drive business into manufacturing and services. 

The Fed is watching 

The Federal Reserve is looking at all of this as it considers the next steps for interest rates. Inflation, jobs, ISM indexes and other data points are being watched as they decide when to increase the benchmark federal-funds rate. Most expect a small increase in December. 

Why an increase? The Fed needs to create some space to have the tools needed to deal with any possible future recession. With China’s slow growth, the effect on the Brexit exit from the EU, and Europe has continued economic struggles; they do not want to go to negative interest rates, as others have to stimulate spending.

Trucking slow but improving in August 

The number of loads jumped 20 percent during the week ending Sept. 17 compared to the week before and the number of trucks added 19 percent as the spot market rebounded during the first full week after the Labor Day holiday but it barely translated into higher rates according to DAT Solutions. 

The national average van rate dropped 2 cents to $1.64 per mile and the reefer rate declined 2 cents to $1.91 per mile. The national average flatbed rate rose 2 cents last week to $1.89 per mile. 

While freight remains soft, DAT Solutions reports that dry van contract rates (ex. fuel) are down 4 percent year-over-year and spot rates are down 5 percent in the same period through August. In September, there is some improvement but it is slow going for rate increases as loads increased 11 percent in August. 

The American Trucking Associations’ (ATA) seasonally adjusted truck tonnage index increased 5.7 percent in August from a month earlier to 141.8. 

Measures from the last two weeks show the August uptick trending in September. Whether this was from a strong post Labor Day back-to-school push, fall produce season, or some effect from the Hanjin shipping fiasco, it is a real uptick in activity. 

I believe that we are seeing a lessening of the inventory problem driven by low import volumes, better consumer sales, and slower manufacturing. Has trucking bottomed out and now rebounding? Time will tell as consumer confidence is falling ahead of the elections. Not good.

In the meantime, major truckload carriers are reducing fleet size, holding the line of driver pay and making the best of a bad situation. Smaller carriers are holding off on installing the mandated electronic recorders that must be installed by the end of next year. 

Some points to consider:

  • Werner has pulled back on capital spending and reduced its fleet size in the third quarter.
  • Old Dominion Freight Line Inc. reported a decline in less-than-truckload shipments in August, and unadjusted year-over-year daily tonnage was down 4.6 percent in the third quarter. 

In light of this freight market, LTL and Parcel carriers are going after rate increases.

  • Old Dominion Freight Line Inc. has scheduled an average 4.9 percent increase on several tariffs that take effect Sept. 26.
  • XPO Logistics, YRC Worldwide and UPS Freight have likewise have announced increases of 4.9 percent.
  • ABF Freight started this off by announcing a 5.25 percent increase as of August 29
  • UPS announced a 4.9 percent increase for domestic ground as well as air and international services, airfreight within and between the United States, Canada and Puerto Rico, in addition to their LTL freight business. More package price information will be available on November 18th.
  • FedEx Corp. says it will raise its shipping rates effective Jan. 2, including an average increase of 3.9 percent for U.S. domestic, U.S. export and U.S. import services, and an average of 4.9 percent for its ground and home delivery services. The FedEx Freight Extreme Length surcharge will change from $85 to $150 and will be applied to shipments with dimensions of 12 feet or greater versus the prior 15 feet.
  • Unannounced increases are yet to come from Averitt Express and YRC Regional. 

Working on the railroad 

The Cass Intermodal Index continued its downward slide, declining another 2 percent year-over-year in August after falling 1.5 percent and 2.4 percent in June and July, respectively. Still the reading of 125.5 in August is up 1.6 percent from July’s level and marks the second straight month-over-month improvement. 

The Cass Intermodal Price Index measures market fluctuations in per-mile U.S. domestic intermodal costs and includes all costs associated with the move, such as linehaul, fuel and accessorials. 

For the week ending September 17, total carloads were down 5.3 percent compared with the same week in 2015 and U.S. weekly intermodal volume fell 4.9 percent according to the Association of American Railroads (AAR). 

It looks like rail volume has bottomed out. With the low truck rates still in play, intermodal will have a slow recovery. 

Hanjin Shipping Debacle 

Shippers continue to deal with the fallout over the Hanjin bankruptcy on August 31that stranded 89 ships worldwide with $14 billion of inventory needed by retailers, tied up ports who would not unload them unless they were paid, and created a container pileup, as they would not be accepted back at port. Some freight will not make it in time for Black Friday.  

Lenders, to get the situation under control have provided about $100 million and equipment lessors are taking back their ships and containers. In the meantime, judges and lawyers will determine what happens next. 

The lesson is clear for shippers; if capacity is not used and paid for then it will go away. 

At Wagner 

The holiday season is upon us and Wagner Logistics is as busy as ever. New warehouse operations are up and running and our startup team in busy in the Memphis market. 

We have a nice pipeline of projects as the Wagner team is fully engaged and looking forward to a strong finish in the fourth quarter. 

A number of us will be attending the annual CSCMP Conference in Orlando next week, please reach out and say hello!  

If you have a warehouse project or a transportation RFP on your plate, please consider including Wagner in your 3PL mix. With 70 years of business experience behind us, we say “Bring It” every day!

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 4,500,000 sq. ft. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dallas, TX, Omaha, NE, Clinton, IA, Kalamazoo, MI, Charlotte, NC, Memphis, TN, 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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