Supply Chain Blog

Economic data mixed while freight surges

 

Dear Friends,

As I write this week’s blog, I’m in Chicago at the Eye for Transport Conference. The C-level speakers are excellent. Brad Jacob of XPO spoke town hall style, one of the takeaways is that they are back in a M&A game looking to make big deals for companies having over $500 million in EBITDA. Wow. 

As I walked in Chicago today it’s clear that summer’s heat and humidity has arrived.

I love all parts of summer, pool time, family vacations, MLB baseball and trips to the mountains. U.S. consumers must be doing something else too because they didn’t spend in May. 

Truckload capacity has tightened up over the last two weeks although there are a number of reasons, I’ll touch on later, let’s get to the economic news. 

Retail sales disappoint 

The consumer drives the economic train and it didn’t get out of the station last month as retail sales fell 0.3 percent in May. This is the largest decline since January 2016. 

Some of the falling sales numbers are attributed to lower gasoline prices as some categories fell backwards. These include big-box retailers, electronics stores and car dealerships making for a disappointing May for these businesses. 

Core retail sales, which exclude automobiles, gasoline, building materials and food services, were unchanged in May after growing by 0.6 percent in April and up from the originally reported 0.2 percent increase. 

Although core retail sales, which go directly into the calculation of nation’s gross domestic product, were flat last month. The April figure was revised higher means the second quarter of the year started on a relatively strong footing for personal consumption spending. 

Manufacturing slides 

Industrial production is a measure of output at factories, mines and utilities saw no growth from the prior month according to the Federal Reserve. Output in April climbed a revised 1.1 percent, up slightly from an initial estimate of 1 percent. 

Manufacturing is the biggest component of industrial production, it was the biggest disappointment in May. The index dropped 0.4 percent, partly giving back April’s big gain. Manufacturing output had touched a post-recession high in April. 

The Institute for Supply Management (ISM) earlier this month said its closely watched index of U.S. manufacturing activity rose slightly in May. ISM manufacturing readings for each month this year have been higher than any month in 2015 or 2016. 

Inventories fall 

Business inventories fell 0.2 percent in April and the inventory-to-sales ratio, an indication of demand, was unchanged at 1.37 months. At April's sales pace, that's how long it would take for businesses to clear their shelves. 

The Fed makes a move 

Despite retail sales falling and a dip in consumer prices, the Federal Reserve raised interest rates for the third consecutive quarter as the central bank signaled its confidence in the U.S. economy. 

The Federal Open Market Committee pushed its benchmark interest rate higher to a range of 1 percent to 1.25 percent, meaning both consumers and businesses will face higher costs when it comes to borrowing money from banks. 

By historical standards, even with this latest increase the rate is still extremely low after falling to near zero in 2008. 

Trucking surges 

I thought that the truckload market was fairly balanced, until recently. Seasonal demand is in high gear and coupled with the Roadcheck program last week, capacity is tight. Many drivers took the week off it appears to avoid a saturation of equipment checks across the U.S. as the Commercial Vehicle Safety Alliance (CVSA) held their annual International Roadcheck, a three day event held June 6-8. 

Spot market pricing reacted as rates jumped sharply last week. DAT Solutions reported the average dry van rate was $1.68 per mile in the week of 5/27. In the week of 6/3 the average spot rate moved to $1.73 then last week it jumped to $1.79 per mile. 

The load-to-truck ratio likewise rose with available loads up 30 percent. The van ratio was up 12 percent to 5.7 loads per truck.

Nationally, the number of posted van loads increased 12 percent while truck posts were 8 percent higher. The national average van rate gained 6 cents to $1.79 per mile. Outbound rates were up in almost every major van freight market.

By the second week of July we should get a clearer picture of what the freight market really is doing. By then we will be a week removed from the July 4th holiday and on the back end of produce season. Will the load count grow or slow? Stay tuned.

LTL truckers are feeling good about their business, so much so that they are comfortable giving a general rate increase (GRI). They are seeing significant shipment growth and feeling good about the remainder of 2017.

LTL carriers are raising their pricing between 3 and 5 percent depending where they are relative to the market. Several have already made their GRI move: ABF (+4.9% effective May 22), YRC Freight, (+4.9% effective May 29), XPO Freight (+4.9% effective June 5). 

Remember that most large shippers move freight under LTL contract rates so it’s the small shipper, about 20 percent, that ship on tariffs. This is the most profitable freight for LTL carriers. 

Rail business improving 

The railroads are seeing a pickup in freight volume. Crude oil and gas has improved and intermodal made gains as higher trucking rates make domestic container shipping more competitive. 

The Association of American Railroads (AAR) reported that United States rail carload and intermodal volumes each saw annual gains for the week ending May 27. 

Rail carloads increased 8 percent and that four of the 10 carload commodity groups posted an increase compared with the same week in 2016. They included grain, up 26.9 percent carloads; coal, up 25.3 percent and nonmetallic minerals, up 11.4 percent.   

Intermodal container and trailer volume increased 5.4 percent keeping the growth trend going. 

On a year-to-date basis through the first 21 weeks of 2017, U.S. carloads were up 6.5 percent at 5,380,624, and intermodal containers and trailers saw a 2.1 percent annual gain at 5,531,759. 

U.S. rail traffic surged 6.4 percent to 2,625,492 carloads and intermodal units last month compared with volumes in May 2016, the Association of American Railroads (AAR) reports. 

At Wagner Logistics 

Wagner’s transportation brokerage business has been booming as carrier capacity becomes harder to find. It’s been all hands on deck as a surge of loads hits our dispatch and loads are booked and moved. Hats off to the transportation division for living the “Bring It” promise. 

On the warehousing side of the business we are working on process improvements and fine tuning operations. The IT group has a full list of projects such as enabling dock operations with tablet applications that make it quicker for a carrier to turn a load at our receiving or shipping docks.  

Are you considering a change in your distribution network and adding a D.C.? Looking for trucking help in a lane? Interested in securing dedicated truck capacity for closed loop runs? If so please give me a call. Wagner has been in business for 71 years and we 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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