Supply Chain Blog

Mid-Year, how far have we come?

 

Dear Friends,

Happy Independence Day everyone! The midpoint of the year is a good time to see where the logistics industry stands in 2017: 

Rail intermodal – Improving as truckload rates rise on the spot market. 

Rail – By all accounts grain will give rails a boost while oil is up and autos slide. 

Truckload – Contract rates continue to be depressed until renewal time. I expect truckload carriers to flex their pricing muscle to the extent they can as the economy continues its slow improvement. Spot rate improvement has been encouraging as precursor for contract rates. 

LTL – Healthy and poised for continued growth and profitability. 

Parcel – Overheated as eCommerce growth fuels shipments into this sector. Seasonal capacity issues drove UPS to announce pricing increases so it will be interesting to see how this plays out. 

Warehousing/Contract Logistics – Speculative construction continues at a torrid pace in a hot real estate market. Companies want to locate inventory as close to their customers as possible, expansion will continue. Workforce challenges remain as labor costs escalate. 

Technology – The race is on for autonomous vehicle development, robotics in warehouse applications and digital freight movement as the convergence of technology and operations takes hold. Taking out waste at every level is the goal with humans handling exceptions instead of routine tasks. 

At the end of the day, Congress needs to make decisions on health care, regulations, tax reform and infrastructure. This uncertainty is holding companies from making important decisions that are affecting our nation’s growth. If a sustained 3 percent GDP is achieved then watch out as labor shortages become worse and carrier capacity tightens driving up costs. 

CSCMP annual State of Logistics Report is released 

The report is titled, “Accelerating into Uncertainty” which is appropriate given the economic impact of politics and the dynamic nature of business today. 

A.T. Kearny, authored the report, has some high points making for an interesting read.

  • 2016 saw the first drop in U.S. Business Logistics costs since 2009 coming in at 7.5 percent of GDP falling 1.5 percent year-over-year from 2015
  • U.S. economic growth will be strong in the near term
  • Rising interest rates and an appreciating U.S. dollar could increase the costs of doing business
  • Businesses appear to be cautious in adding inventory under the cloud of uncertainty
  • Fluctuations in truck tonnage demand to continue as businesses adjust their outlook over time
  • 2017 so far is flashing conflicting signals on economic fundamentals making planning a challenge 

If you are interested in seeing this report, please shoot me a message. It is very comprehensive. 

Durable goods slip 

For the second straight month orders for durable goods, those expected to have a life of 3 years or more, fell 1.1 percent from April to May. The Commerce Department reported that this was the biggest drop in six months. 

The Trump bump in the economy has stalled as companies wait to see what actually happens in Washington with tax reform before rolling out capital spending plans. 

The fall was impacted by a 30.8 percent drop in military aircraft orders and an 11.7 percent drop in non-military aircraft. If one strips out aircraft and transportation equipment, orders inched up 0.1 percent. 

For the year through May, durable goods orders are up 2.8 percent compared to the same period in 2016. Orders for nondefense capital goods excluding aircraft fell 0.2 percent in May from the previous month. 

Industrial production growth 

The Federal Reserve Bank data shows that industrial production grew 2.2 percent year-over-year in May. The Institute for Supply Management (ISM) likewise reported expansion in May.

Look for production to bounce back. 

Housing continues to be a bright spot 

The spring selling season was a good one for home owners with “For Sale” signs in their yards. The National Association of Realtors reported that existing home sales increased 1.1 percent from April to May despite rising costs and a shrinking inventory. Compared to May 2016, sales are up 2.7 percent. 

The median sales price in May was $252,800, the highest nominal level on record and up 5.8 percent from a year earlier. There was a 4.2-month supply of homes on the market at the end of the month, based on the current sales pace. Inventory has declined on a year-over-year basis for 24 straight months. 

New construction didn’t fare as well. 

Newly issued economic reports show housing starts in the U.S. declined for the third straight month in May by 5.5 percent according to the Commerce Department. Led by a drop multifamily production. 

Multifamily starts fell 9.7 percent while single-family production edged down 3.9 percent. Year-to-date, single family home construction is up 7.2 percent. 

Consumer Confidence slips 

Consumer confidence fell in June but is up slightly compared to the same time a year ago, according to the University of Michigan Survey of Consumers. 

The early June drop of 2.6 points in the Sentiment Index to 97.1 is blamed on the turmoil in Washington as congress and the President battle and investigations continue. 

The strong job market, growing household income and 401Ks provide a financial sense of security for consumers. 

UPS announces plans for seasonal pricing 

As I pointed out at the top of this blog, United Parcel Service Inc. plans to charge retailers extra fees to deliver packages during holiday season, defined as the time between November 19th and December 2nd. The second period of surcharge will be from December 17th to 23rd. 

This will put pressure on retailers who offer free shipping as UPS adds 27 cent surcharge on home deliveries. Other services will be charged 81 cents for next-day air and 97 cents for two- or three-day delivery. 

The parcel carrier will also impose surcharges on all large packages above a certain threshold, which cost more to ship and sort, throughout the entire period. Those surcharges will be more severe, adding an additional $24 fee to an existing surcharge of $70 for a package weighing more than 150 pounds and over a certain size. 

UPS also will charge a peak surcharge of $249 per package on the largest packages, on top of a $150 fee for such “overmax” packages. 

The company believes it needs the additional charge to offset the costs of sorting and delivering packages during this peak period. 

UPS appears to be encouraging retailers to have customers’ pickup these packages from their retail store locations as the surcharge only applies to residential deliveries. The hefty charges for overweight and sized packages is a move to encourage consumers to use their LTL freight network. 

At Wagner Logistics 

As we enter an extended Independence Day weekend, let me wish everyone a happy and safe Fourth of July. Despite the frenzied battles across political lines it’s good to know that our founding fathers did a great job in writing our constitution. It still works well to provide our government’s ability to balance power, with all of its flaws it’s still the best system of government in the world. 

Please enjoy your time with family and friends.  

As you execute plans for the second half of the year or begin planning for the coming year, please let me know if you are planning to add warehouses or seek help in moving freight. 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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