Supply Chain Blog

More Economic Questions than Answers

 

Dear Friends,

The economy continues to perform well although there are weak spots. Consumer confidence remains high giving hope for what’s to come. 

The negative is people are realizing the pace of change is slow in Washington. The pro-business agenda pushed by the Trump administration is taking longer than anticipated which means that future health care expenses and tax reform effects are hard to project. 

The first quarter GDP numbers are expected to be low and that coupled with lower retail sales are making people nervous. 

Hopefully, Congress can bring resolution to the corporate tax rate question and it provides an economic boost to the economy. As of now, the President has asked for a 15 percent corporate tax rate while the House Republicans are shooting for a 20 percent corporate rate as well as a 25 percent rate for pass through companies that are LLCs or S Corp businesses. 

Now the arguments over what is best for the economy, U.S. workers and businesses begins. We will wait and see what Congress can agree on that isn’t a deficit buster. 

Labor market tightens 

At the same time the administration is pushing back on immigration, we are seeing shortages of low-skilled labor. The recent Federal Reserve report said that this tightening labor market is putting pressure on U.S. wages and restraining growth in a few regions. 

Trades such as manufacturing, transportation and construction are specifically mentioned by the Fed. 

Housing is red-hot 

Are we heading into another housing bubble? After coming back from the brink five years ago those concerns are worth looking into. 

Demand for housing has outstripped supply, this has overheated pricing for homes. New construction has been slow due to obtaining loans, rising lumber costs and the shortage of construction labor. 

The S&P CoreLogic Case-Shiller U.S. National Home Price Index says that in February pricing for homes jumped 5.8 percent higher than the same month last year. In total, housing prices are up 40 percent from when the housing bubble burst in 2012. 

The National Association of Realtors reports that the supply of homes for sale in March was down 6.6 percent from the same month in 2016. 

Earnings season is here 

While companies like Caterpillar and McDonald’s are reporting first quarter positive earnings, the same cannot be said for many truckload carriers who saw disappointing profit results below expectations. 

Werner, J.B. Hunt, Swift, Marten and others suffered through the first quarter with poor pricing in a mediocre freight market. Capacity is still plentiful, we are waiting for a real pickup in the freight market which should occur later this year. 

The March Cass Truckload Linehaul Index declined 0.9 percent year-over-year to a reading of 124.5, its lowest level since January. 

March freight volume reported 

The American Trucking Associations’ (ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index for March came in falling 1 percent from February which had fallen 0.1 percent from January. The only good news was that it was higher year-over-year increasing 0.7 percent when compared with March 2016. 

Late winter storms are getting most of the blame according to ATA, who points out that seasonally adjusted tonnage was up 1.2 percent from the previous quarter. 

Truckers remain optimistic with conditions improving there is light at the end of the tunnel later this year. Carrier capacity should be reduced with lower inventory levels, better manufacturing activity, solid housing starts, positive consumer spending coupled with regulatory relief, lower tax rates and the ELD mandate coming into effect this December. 

It’s estimated that with the implementation of the electronic logging devices (ELDs) in December we could see a loss of 3 to 10 percent of the available capacity. 

Truckload rates hold firm 

DAT Solutions reports that the national average rate per mile for the last two weeks has held steady at $1.68 per mile. 

The firm says that spot market rates, a precursor to what can be expected in contract rates, gathered steam in the first quarter with the spread between van spot rates and contract rates at about $0.30 per mile. 

LTL Freight 

Expectations are optimistic for LTL carriers with the prospect of lower taxes, more capital, regulatory relief, improved manufacturing and infrastructure improvements down the road. 

LTL carriers should be reporting that volume picked up 1 to 3 percent in the first quarter after falling 1 percent in the 4th quarter last year. This improved volume will give carriers confidence to raise LTL pricing 3 to 4 percent or more later in the year. 

Meanwhile, at the railroad 

The Cass Intermodal Price Index, recorded its sixth straight year-over-year improvement in March, hitting a level of 135.4, its best reading since April 2014. Pricing bumped up 4.8 percent year-over-year in March after improving 3.5 percent in February. 

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. 

At Wagner Logistics 

Wagner finished the first quarter on a strong note. April is continuing with strong truckload volume though our transportation group. Warehousing and fulfillment is likewise performing well with little excess capacity. 

Systems implementations and setting up customer EDI remains a top priority as our IT team stays busy with a long list of projects.  

Are you considering a change in your distribution network? Looking for trucking help in a lane? Interested in securing dedicated truck capacity for closed loop runs? Give me a call as we have been in business for 71 years and want to hear about 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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