Supply Chain Blog

The economy rolls as does the freight market

 

Dear Friends,

Despite the craziness in Washington, D.C. the economy continues its upward trend. Likewise, companies engaged in the supply chain are seeing improvement with the freight market and the use of warehousing/distribution services is rising. 

Factory orders rise 

New orders for manufactured goods rose 1.2 percent sequentially in January from December according to the Commerce Department. Aircraft orders caused volatility in the numbers as usual. Year-over-year in January, new orders are up 5.5 percent. 

Factory goods shipments were up 0.2 percent after jumping 2.5 percent in December for eleven straight months of improvement. 

According to a report from the Census Bureau, demand for durable goods, items that are expected to last at least three years, rose 2 percent. Demand for nondurable goods, everything from food to paper products, rose 0.4 percent in January after a 3.4 percent jump in December. 

Commercial aircraft orders jumped 69.8 percent and there was a 62.2 percent increase in orders for military aircraft. Motor vehicles and parts rose 0.8 percent, while orders for ships dropped 33.7 percent. Take out aircraft orders, durable goods fell 0.4 percent taking a break after surging 2.4 percent in November and December. 

The Federal Reserve monitors and uses factory orders as a measure, I would be surprised if we didn’t see another quarter point rise in the Fed lending rate by the end of the month. 

Dueling Purchasing Manager reports 

Two separate Purchasing Manager reports gauging February economic activity were recently released. 

First let’s look at the Institute for Supply Management (ISM) Purchasing Manager’s Index. It came in at a reading of 57.7 up from January’s 56 number for the highest reading since August 2014. As a reminder, a reading above 50 indicates expansion while below that level shows contraction. 

The ISM New Orders Index was up 4.7 percent from January to February coming in at 65.1.  Out of eighteen manufacturing industries, seventeen reported February growth. 

The second report comes from HIS Markit, a financial services company. The seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) came in at a 54.2 reading in February, barely down from January’s 55 number. 

Manufacturing has been on a growth track since June of last year as finished goods inventories are replenished. 

Consumer spending slows 

The Commerce Department reports that U.S. consumer spending cooled in January as demand for automobiles and utilities fell while inflation recorded its biggest monthly increase in four years. 

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.2 percent after rising 0.5 percent in December. 

The promise of tax cuts from the Trump administration is helping to boost consumer sentiment, we need the details to see if consumers stay in a spending mood. Promises must turn into reality. 

A long awaited headwind is inflation which is measured within the personal consumption expenditures (PCE) price index. The PCE increased 0.4 percent in January after rising 0.2 percent in December. Inflation is cutting into the increased personal income. When adjusted for inflation, consumer spending fell 0.3 percent in January. 

Taking out energy and food, the “core” PCE price index rose 0.3 percent in January. That was the biggest increase since January 2012 and followed a 0.1 percent gain in December. 

Personal income rose 0.4 percent in January after gaining 0.3 percent in December. Income at the disposal of households after accounting for inflation, fell 0.2 percent, the first decline since October 2013. 

While consumer spending appears to be modest, the first quarter GDP will be affected unless people get out and spend. It is expected that consumers will do exactly that. 

Trucking remains seasonally strong 

The first quarter of the year is the traditional slow season for trucking. The American Trucking Associations (ATA) reported that January truck tonnage, on a seasonally adjusted basis, jumped 2.9 percent from December and 2.6 percent year-over-year. 

DAT Solutions reported that in the week of February 19th, flatbed load-to-truck ratios rose 8 percent. Dry van demand remained stable holding the national average rate at $1.62 per mile. 

In the week of February 26th, the load-to-truck ratio jumped 25 percent causing the national average dry van rate to rise four cents per mile to $1.66. All equipment types saw increased demand and pricing at month end. 

Emboldened by the improved freight market, operators of trucking fleets continued buying with orders for new heavy duty trucks (Class 8) up for the fourth month in a row. The overall order count of 22,900 Class 8 tractors remains relatively light but the steady upturn has pushed the backlog past 100,000 trucks. Truck makers are relieved that the drought appears to be over. 

LTL trucking companies are reporting higher shipment counts in February from January. They are saying their pricing is holding firm so carriers should be emboldened to speed up truck orders later this year. 

It appears the freight recession is over for trucking.

Rail improves a little, start of a trend?

U.S. railroads moved 2,112,479 carloads and intermodal units in February, a 4.2 percent increase from traffic totals in February 2016, according to the Association of American Railroads (AAR).

February carload traffic last month rose 6.7 percent to 1,044,040 units compared with the same month last year. U.S. railroads also originated 1,068,439 containers and trailers in February, up 1.8 percent from the same month last year.

Eleven of the 20 carload commodity categories tracked by AAR on a monthly basis showed carload gains last month compared with February 2016. These included coal, up 19.2 percent or 57,589 carloads; crushed stone, gravel, and sand, up 13.1 percent or 10,091 carloads; and primary metal products, up 6.8 percent or 2,357 carloads.

Commodity categories that posted decreases last month compared with a year ago included petroleum and petroleum products, down 12.4 percent or 5,543 carloads; motor vehicles and parts, down 4.8 percent or 3,746 carloads; and metallic ores, down 19.1 percent or 2,793 carloads. 

Excluding coal, carloads in February inched up 1.1 percent compared with last year.

At Wagner Logistics 

Spring fever is here with the NCAA tournament about to begin and baseball on the horizon. All operations are running well and the Wagner transportation team is moving loads according to plan. We have momentum as we wrap up the first quarter. 

This week Wagner donated a tractor/trailer and a driver to Operation Breakthrough, to help move them to a new warehouse. I’m proud of the charitable work our organization provides to our community. Whether it is a food drive, adopting families at Christmas, or providing logistical support to charitable organizations, our people have the heart to step up. 

Should you have a distribution center project anywhere in the country, please give Wagner a call. We would love to discuss any distribution network realignments or perhaps replace a weak link in your supply chain. 

Issuing a transportation RFP? Having a problem moving freight in a particular lane? Please consider adding Wagner Logistics to your pool of carriers/brokers. Experience the service value the Wagner team provides.  

We have been in business for 71 years so bring us your challenges. As we say everyday, 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 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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