Supply Chain Blog

Third Quarter Begins with Momentum

 

Dear Friends,

The Independence Day celebrations always remind me that we are half way through the kid’s summer. It is also a reminder that we are half way through 2017 and we have goals to accomplish.
 
Congress too has many goals to accomplish and the clock is getting away from them as we speed through the year. Agreement on healthcare, tax reform and infrastructure are elusive. Meanwhile the economy continues its steady growth.
 
Fast growth
 

The Institute of Supply Management’s (ISM) June factory survey moved the index ahead by 2.9 points for the largest jump since 2013. The ISM survey measures orders, production and employment in the manufacturing sectors.
 
Fifteen of 18 industries surveyed by the purchasing managers group reported growth. This broad based expansion included machinery, transportation equipment, computer and electronic products, petroleum and coal products. The three reporting contractions were apparel, textile mills and primary metals.
 
Manufacturers are eager to learn what is going to happen with policies regarding tax reform, regulations and tariffs on imported steel.
 
Employment rises, again
 
The Bureau of Labor Statistics reported that a net 222,000 jobs were added in June, showing the job market remains robust. May’s initially weak figure was revised up by 14,000 to 194,000 jobs and April’s gain was revised up from 174,000 to 207,000.
 
The unemployment rate rose from 4.3 percent to 4.4 percent in June, however for a good reason as the labor force participation rate jumped up.
 
Employment in construction jumped 16,000, manufacturing increased by 1,000 and service sector rose by 162,000 jobs. Transportation and warehousing (included in the service sector) rose 2,400 after a big May gain of 11,600 jobs.
 
Wage growth was just 2.5 percent over the same period in 2016. 
 
Wholesale inventories rise
 
The Commerce Department said wholesale inventories climbed 0.4 percent following a 0.4 percent drop in April.
 
The supply of autos grew as sales slide contributing to an overall rise in wholesale inventories in May. Auto inventories increased 0.7 percent after falling 1.4 percent in April.
 
This figures into the GDP calculation as wholesale stocks without autos rose 0.3 percent in May. Inventories had contributed to GDP growth for two straight quarters remaining lean this year.  At May's sales pace it would take wholesalers 1.29 months to clear shelves, up from 1.28 months in April.
 
Wal-Mart applies pressure
 
Wal-Mart is requiring vendors to deliver excellence or pay up. Two days late or one day early? Pay a fine. If you deliver on time but the products aren’t packed right you will get dinged with a fine.
 
“On-Time, in full” is the name of the new program. According to Bloomberg who acquired the information, Wal-Mart believes it can collect one billion dollars through improving the availability of inventory in its stores through seeking efficiencies and requiring performance.
 
Wal-Mart has made progress in reducing inventory in its 4,700 stores and looks to ensure the inventory it buys is available for consumers and on the shelf.
 
While this sounds harsh, Target issued a similar program in 2016.
 
Beginning in August, Wal-Mart will require full-truckload vendors of fast-turning items like groceries and paper towels to “deliver what we ordered 100 percent in full, on the must-arrive-by date 75 percent of the time.” Items that are late or missing during a one-month period will incur a fine of 3 percent of their value. Early shipments get charged too because they create overstocks.
 
The Wal-Mart goal is to be on time and in-full (OTIF) 95 percent of the time.
 
Ports expecting a surge
 
The National Retail Federation (NRF) says July and August should be two of the busiest months ever seen for imports at the nation’s major retail container ports. As merchants begin the back-to-school season and start stocking up for the holiday season, new records may be set.
 
The major ports handled 1.72 million twenty-foot equivalent units in May up 7.3 percent from April and up 6.2 percent from May 2016. One TEU is one 20-foot-long cargo container or its equivalent.
 
June was estimated to be up 5.3 percent from the same time last year. July is forecast to be up 5.1 percent. August could bring 1.75 million TEUs, up 2.2 percent for the highest import volume recorded.
 

NRF has forecast that 2017 retail sales (excluding automobiles, gasoline and restaurants) to increase between 3.7 - 4.2 percent over 2016, driven by job and income growth coupled with low debt.
 
The report covers the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Hampton Roads, Charleston, Savannah, Port Everglades and Miami on the East Coast, and Houston on the Gulf Coast.
 
Trucking surges in June into July
 
The DAT Solutions data showed that while dry van truckload freight had an average national spot rate of $1.79 per mile in the weeks ending 6/17 and 6/24, the rate jumped to $1.80 in the week ending 7/1 and rose again by a dime the following week ending 7/8.
 
My sense of the market is that we are now on the back end of produce season and should settle into more normal markets. Freight volumes should remain strong but less strong as June. If the manufacturing production numbers are right, this coupled with back-to-school volume should keep available capacity busy and full.
 
Rail
 
The Association of American Railroads (AAR) reports that in the week ending July 8th US railroads handled 453,080 carloads and intermodal units, up 2.4 percent compared with total volume from the same week last year.
 
Carloads in the period increased 1.1 percent, while intermodal volume for containers and trailers were up 3.7 percent.
 
Only three of the 10 carload commodity groups tracked by the AAR posted gains in the week: nonmetallic minerals at 17.3 percent, coal at 5.7 percent and chemicals at 4.4 percent. Commodity groups that posted the largest year-over-year declines included petroleum and petroleum products at 19 percent and grain at 13.3 percent.
 
At Wagner Logistics
 
Hot weather prevails in the Midwest and all operations are performing at a high level. Our transportation team has been doing well moving loads in this tight truck market while we keep improving systems across the company.
 
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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