Supply Chain Blog

Strong Finish to 2016

 

Dear Friends,

What will the coming year bring? Reading the tea leaves, I’ll take a stab at 2017 predictions.

  • Depending on the severity of the winter I believe we will see an average 2.5 percent GDP for the year, 3 percent is not out of the realm of possibility.
  • Unemployment rate of 4.7 percent
  • Higher wages resulting in inflation of 2.4 percent
  • With rising bond rates we will see higher mortgage rates
  • Housing will continue to rise between 4-5 percent
  • The industrial real estate market will remain red-hot 

About 80 percent of the economy is driven by consumer spending, it stands to reason that we’ll see a good economic year driven by higher wages, job security, and rising home equity. 

All of this will drive transportation and by the third quarter we could be looking at capacity challenges that will bring rising freight rates. Greater economic activity will also drive up fuel consumption so I expect rising diesel and gas prices. 

In a nutshell, 2017 is shaping up to be a good year all around. 

Retail sales cooled in November 

The Commerce Department says that retail sales rose a seasonally adjusted 0.1 percent in November from the month before. This is up from a year earlier, suggesting a modest start to the holiday shopping season after sales increases in September and October. 

Year-over-year, there was 11.9 percent growth in November online sales, compared to 3.8 percent growth in overall retail sales. 

Manufacturing finishes up with strength 

Business conditions have been improving at a fast pace since March 2015, the preliminary December Flash U.S. Manufacturing Purchasing Mangers’ Index (PMI), inched up to 54.2 in December from 54.1 in November. This makes for a 21- month high, and is way up from the post Great Recession low of 50.7 in May. 

The index comes from financial information services company IHS Market and is based on surveys from 600+ manufacturing companies. The final December report will be released in January about the same time the manufacturing report comes from the Institute for Supply Management. 

The PMI signals expansion in manufacturing with faster job creation and stock building offsetting a small reduction in output and new order growth since November. The increase in pre- production inventories was the strongest recorded since the survey began in May 2007. Manufacturers are accumulating inventory ahead of demand displaying optimism in future orders. Production confidence bodes well for a strong start to 2017. 

The Commerce Department reports the total manufacturing and trade inventories to sales ratio moved lower in October to 1.37. Based on this ratio, it would take about one and a third month for businesses to sell their stockpiled inventory. This is down from 1.39 in October 2015 and even higher levels earlier in 2016.  

This is the biggest decline in inventories in a year setting up transportation companies to be the beneficiary when replenishment takes place. 

Housing remains strong despite a November drop 

Builder confidence in the market for new single-family homes jumped 7 percent to a level of 70 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since July 2005. The promise of fewer regulations on business is said to contribute to this optimism. 

Despite these warm feelings and strong consumer indicators, the Commerce Department said November housing starts dropped 18.7 percent from the October level, which was revised upward and was at its highest rate since July 2007. 

Regardless, the November level is up 6 percent from the third quarter average. 

ISM releases a positive economic forecast 

The December 2016 Semiannual Economic Forecast issued by the Institute for Supply Management (ISM) says the future looks good for both the manufacturing and non-manufacturing sectors. 

For manufacturing, ISM data pointed to revenue heading up 4.6 percent in 2017 and it noted that 67 percent of survey respondents expect 2017 revenues to be higher than 2016. 

Sixteen of the eighteen reporting manufacturing sectors maintain revenue growth is expected for the first half of 2017. Capital expenditures will increase 0.2 percent and capacity utilization is expected to be up slightly at 81.9 percent. 

On the non-manufacturing side it’s expected that revenues will rise 4.7 percent with 57 percent of respondents expecting 2017 revenues to be higher than 2016; 14 of the 18 non-manufacturing sectors in the report are calling for increased revenues. 

Prices paid for non-manufacturing services are expected to increase 1.8 percent in 2017 and ISM said that labor and benefits costs are expected to rise 2.5 percent in 2017.

Truck driver pay is back as an issue 

As economic activity and freight demand continue its steady rise, truck drivers are getting more money. 

This year was a slow freight year which has kept a lid on increasing driver compensation but as the economy improved with GDP up 3.2 percent in the third quarter, carriers are starting to review and increase driver pay packages. 

Crete Carrier Corp. has announced a one cent increase per practical mile while USA Truck said they were raising performance bonuses by five cents per mile. 

Carriers are trying to improve life on the road by throwing in perks like free satellite radio, offering detention pay, better retirement, insurance, and newer equipment to drive.  

The US Bureau of Labor Statistics says the average annual truck driver wage rose 2.4 percent in 2014, compared with a 1.7 percent increase in the overall average US wage. If you will recall, 2014 was the year of the last hot trucking market. 

Freight market is up then down 

In the week of December 4th load availability edged down after spiking the week before according to DAT Solutions. Load-to-truck ratios remain higher than usual for this time of year as van spot rates fell a penny per mile for the week to $1.73. 

DAT said the amount of freight available to haul from the spot truckload market surged in November as rates generally moved higher.

The Cass Freight Index, which measures the volume of shipments and expenditures for freight shipments across all transportation modes, showed in November that shipments declined 0.5 percent from November 2015 and posted a wider 3 percent drop from October.

Rail intermodal improves

The Cass Intermodal Price Index, which measures all costs, including linehaul, fuel and accessorials, increased 0.3 percent in November from the same time a year ago after a 0.4 percent improvement in October. Despite this index reading of 125.7, it was pulled down from 130.4 in October due to a 3.6 percent drop in November from the month before.

At Wagner Logistics 

December is finishing on a strong note with all Wagner operations poised to start the New Year with plenty of momentum. We have some new customers we are onboarding in Missouri and Michigan at the time of this writing. 

It is also the time of year when many of our customers require physical inventories and I am pleased to report that these are going very well. 

This will be my last blog of the year and I want to thank Jessica Torres in our marketing group for helping me with the editing, addition of hot links, and photos. I couldn’t get this out every other week as I do without her. 

As I conclude each blog, please think of the fine people at Wagner Logistics whenever you have a distribution center project or need help moving freight in your lanes. I am very proud of this outstanding team. As we say every day, Bring It!  

Have a great holiday season!

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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