Supply Chain Blog

The Economy isn't so Scary

(but the transport industry is)

 

Dear Friends,

As mentioned in my last blog, I took part in a trade mission to Havana, Cuba. Wow, what an experience! Briefly, it is a beautiful old Spanish colonial city suffering from a serious lack of money for maintenance. Clearly the embargo, or as the Cubans call it, blockade, has left its mark on this country. The U.S. Treasury ban on international banks doing business there in dollars has put a lot of pressure on their country.                                

As a Communist government, they are in control of everything although it loosened up a bit a year ago when restaurants were allowed to privatize. International investment is strictly controlled and the country is very reliant on imports. 

For a complete copy of my travelogue notes and copies of presentations feel free to email me at This email address is being protected from spambots. You need JavaScript enabled to view it. and I will send you copies. 

Back in the “land of the free”, we have a lot going on in our own country as we count down the days to the election. Despite many negatives, I remain optimistic that this is going to be a good holiday season that will help lift many boats. 

Retail gains in September 

Retail sales grew in September, showing consumers are confident about themselves and the economy. 

The Commerce Department reports the 0.6 percent increase in retail sales last month followed a 0.2 percent drop in August, slightly better than the originally estimated 0.3 percent decline. Year-over-year, September’s level increased 2.9 percent. 

Control retail sales are used to calculate the gross domestic product and exclude categories such as autos, gasoline stations and building materials. This measure rose a weaker-than-expected 0.1 percent after a 0.1 percent drop in August. 

I expect the mood of the country to improve following the nastiest election cycle I have experienced. 

Factories bounce back 

The Federal Reserve Bank reports that the nation’s factories, mines and utilities bounced back gaining a modest 0.1 percent last month after a downward revision of -0.5 percent in August. 

Mining production, which includes oil drilling, increased 0.4 percent, reflecting stabilization in the price of oil and other commodities. 

September manufacturing output rose 0.2 percent to annual rate of 0.9 percent in the third quarter. Durable goods production was unchanged. For all of Q3, industrial production increased at an annual rate of 1.8 percent for the first annual increase since Q3 in 2015. 

Those darned inventories 

Trimming inventory seems to be an elusive goal as the Commerce Department reports business inventories increased 0.2 percent in August. Business sales also increased 0.2 percent leaving the inventories-to-sales ratio unchanged at 1.39 months. A very small improvement from where we started at the beginning of the year and it doesn’t help our nation’s motor carriers and railways. 

Housing prices continue to gain 

Low home inventories drove prices up in August, as interest rates remain low helping to fund these near record prices. The S&P CoreLogic Case-Shiller Indices covering the entire country rose 5.3 percent in the 12 months ended in August, a small jump from a 5 percent increase reported in July. 

Single-family housing starts increased 8.1 percent in September according to the Commerce Department and the National Association of Realtors said the share of first-time buyers rose to 34 percent. 

The national Case-Shiller index is now closing in on the record high set ten years ago in July 2006. 

Trucking remains sluggish 

The American Trucking Associations seasonally adjusted truck tonnage index fell 0.7 percent in September year-over-year to a reading of 132.7 reflecting a continued sluggish freight market. The index dropped 5.8 percent from August. As a reminder, this index uses the year 2000 as a baseline of 100. 

The non-seasonally adjusted index, representing the change in tonnage actually hauled by truckers, came it at a reading of 136.4 in September, compared with 143.8 in August. 

Load board operator DAT Solutions reports that in the week of October 16 – 22, spot market loads increased 1.8 percent from the previous week and the Vanload-to-truck ratio decreased 6.4 percent. Fuel prices increased 1.5 percent. 

It appears that the increase in volume seen in August gave the trucking industry false hope as a soft freight market returned in September. 

Taken in total, other than parcel grown through e-commerce, September marks the 19th straight month of year-over-year decline in shipments. Sluggish manufacturing and high inventories all point to an industrial recession. 

Truckers are failing 

While the largest carriers like J.B. Hunt and Swift are muddling through this freight recession by reducing fleet size smaller carriers aren’t making it. Avondale Partners reports that in the third quarter 185 fleet failures took 4,475 trucks off the road. 

Increased costs for drivers, equipment, and insurance coupled with low rates for both contract and spot rates are having a detrimental effect on our countries trucking capacity. As in any market, this is nature’s way of balancing supply and demand. 

LTL Market is treading water 

Based on reporting from publicly held carriers, LTL volumes were flat to poor last summer and September was mixed. The economy just isn’t pushing the freight volume or shipment size needed to push big results at LTL companies. Costs have risen while volume and pricing remains flat. Most LTL carriers have maintained pricing discipline depending on the lane geography and importance of the customer to their network. 

In the second quarter, this year LTL tonnage fell 3.1 percent and with the ATA numbers reported above, it’s fair to say this is still the case. 

FedEx uses their LTL network as a loss leader using it to gain market share on the parcel side with bundled pricing. Other LTL companies (except UPS Freight) cannot afford to use LTL as a loss leader so they remain trapped in the very slow growth economy. They must seek operational improvements to lower their cost of service delivery to drive better operating ratios. 

Rail traffic – still a problem 

Railroads in the U.S. still struggle reporting 4.2 percent less volume than the same week a year before in the week ending October 15th.  The Association of American Railroads (AAR) said that carloads were down 4.2 percent and intermodal loads fell 2.2 percent in that period. 

Two of the ten carload commodity groups posted increases during the week with miscellaneous carloads up 8.7 percent to 10,034 units; and grain up 7.5 percent to 27,300 units. Groups posting decreases, petroleum and petroleum products were down 23.9 percent to 10,492 carloads; forest products were down 16.1 percent to 8,744 carloads; and metallic ores and metals were down 12.2 percent to 18,849 carloads. 

At Wagner Logistics 

We are wrapping up an October that has shaped up to be a stellar month at Wagner with our new distribution center in Byhalia MS (Memphis market) fully operating and all display pallets finished and ready for the Black Friday release. 

While we listen to our customers and feel the love, it’s always nice to be recognized by publications. For the 16th year in a row, Wagner Logistics has been named a Top 100 3PL by Inbound Logistics Magazine and Global Trade Magazine listed us a Top North American 3PL and Top Dedicated Trucking Company. Last but not least, Transport Topics listed Wagner as a Top 50 Warehousing Firm. 

Our secret to success is not really a secret. We simply have a great team supported by great tools for execution and a culture that values our associates and customers. My thanks to Brian Smith, President and CEO for leading this team to another successful year.  

If you are planning a DC or transportation project, please include Wagner Logistics as a member of your services team. 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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