Supply Chain Blog

The economy improves slowly but surely

Dear Friends,

 

Eclipse mania has passed, it was spectacular as was the rise in consumer spending in July. Consumers finally returned to consumerism and found their collective wallets. 

On the negative side, home sales are down, not because people don’t want houses. There isn’t enough inventory available, it’s not truly bad news, just an indication that supply/demand is out of kilter. 

Let’s look at the most recent numbers. 

Economic indicators are up 

The Conference Board believes that things are looking up. Its Leading Economic Index (LEI) for the U.S., forecasting the next 3 to 6 months, grew 0.3 percent in July for the 11th consecutive monthly improvement. 

The last time this happened was in 2015 which was the strongest year in the economic recovery. This bodes well for the 3rd quarter GDP and provides momentum for the rest of the year. Any possible recession has slim odds of occurring any time soon. 

Retail heats up, but not for all retailers 

United States retail sales data for the month of July, per the Department of Commerce and the National Retail Federation (NRF), was largely positive. 

U.S. retail sales contribute around 14 percent to the GDP and total consumer spending amounts to 2/3s of our economy. This has a huge impact on the logistics sector including trucking, intermodal, parcel, ocean, air, e-commerce and warehousing/distribution. 

Commerce reported a 0.6 percent increase from June to July and a 4.2 percent annual increase. For the period from May through July, total retail sales were up 3.9 percent annually. 

Non-store retailers, mainly e-commerce, saw an 11.2 percent annual increase in July, which was followed by building materials, garden equipment and supplies dealers, up 8.3 percent annually in sales. 

The NRF reported that June retail sales, excluding automobiles, gas stations and restaurants, were up 0.6 percent from June to July, tripling June’s revised 0.2 percent gain. July sales are up 3.5 percent annually. Non-store retail sales were up 1.3 percent from June to July and increased 11.4 percent on an unadjusted basis annually. NRF has forecast that 2017 retail sales will increase between 3.7 and 4.2 percent over 2016, driven by job and income growth coupled with low debt. 

The NRF is bullish on retail this year due to consistent job growth making people feel more secure as well as the growth in home prices.  

E-Commerce leaps ahead 

The Commerce Department showed U.S. e-commerce in the second quarter grew significantly and faster than overall U.S. retail sales. Brick and mortar stores saw a modest sales increase in the second quarter but nothing like the 16.2 percent increase in on-line shopping in a year-over-year comparison. 

The business research firm Forrester forecasted that predicted online sales will account for 17 percent of all U.S. retail sales by 2022, up from a projected 12.7 percent share in 2017. 

The report also forecast U.S. online sales to grow 13 percent in 2017 over 2016, which is five times faster than projected brick and mortar sales growth, in line with the NRF’s estimates. 

Inventories increase 

U.S. business inventories recorded their biggest increase in seven months in June as retailers built stock in anticipation of greater demand. The Commerce Department said that business inventories rose 0.5 percent after an unrevised 0.3 percent increase in May. 

Inventories are a key component of gross domestic product. Retail inventories gained 0.6 percent in June as announced in an advance report last month. Retail inventories rose 0.6 percent in May. 

Motor vehicle inventories increased 0.7 percent as previously reported after surging 1.2 percent in May. Retail inventories excluding autos, which go into the calculation of GDP, increased 0.5 percent as reported last month. They rose 0.2 percent in May. 

Business sales rose 0.3 percent in June after edging up 0.1 percent in May. At June's sales pace, it would take 1.38 months for businesses to clear shelves, up from 1.37 months in May. 

Keep on Trucking 

The American Trucking Associations’(ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index increased 0.1 percent in July, following a 4.4 percent drop during June. In July, the index equaled 138.5, up from 138.4 in June. 

Compared with July 2016, the SA index increased 2.3 percent. In June, the index rose 1.2 percent on a year-over-year basis. Year-to-date, compared with the same seven months in 2016, the index is up 1.2 percent. 

The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 141 in July, which was 2.2 percent below the previous month. 

Trucking serves as a barometer of the U.S. economy, representing 70.6 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled nearly 10.5 billion tons of freight in 2016. Motor carriers collected $676.2 billion, or 79.8 percent of total revenue earned by all transport modes. 

The Cass Freight Index Report from Cass Information Systems was released this week, showed year-over-year gains for the seventh straight month and sequential declines. 

July shipments were at 1.126 were off 3.2 percent compared to June and up 1.4 percent annually. The report notes that shipment gains continue to be paced by parcel volumes associated with e-commerce showing outstanding rates of growth with the parcel duopoly of UPS and FedEx each reporting strong U.S. domestic volumes.  

July expenditures at 2.460 headed up 4.5 percent annually and were off 1.5 percent compared to June. 

Truckers and rail intermodal are gaining pricing power when one looks at the proprietary Cass Truckload Linehaul Index (which measures linehaul rates, does not include fuel). The index rose 1.5 percent on a year-over-year basis in June, following April’s 1.3 percent increase. The Cass Intermodal Price Index (which does include fuel) increased 1.8 percent in June. 

Meanwhile over at DAT Solutions, in the week of August 13-19, there was an unseasonal demand for freight. Spot market pricing remained strong although the national average dry van rate slipped a penny to $1.78 per mile. 

Midway through August, there appears to be momentum with an unusually strong freight market. It’s believed that back-to-school stocking drove some of this activity replenishing pens, paper, backpacks and apparel. 

So, what does it all mean? 

I believe we are on the cusp of a real problem when it comes to capacity. Will it be a replay of the 2014 carrier’s market? It’s too early to tell, there are a lot of moving parts:

  • How will the anticipated ELD December mandate affect carrier capacity? Everyone has an opinion ranging from 5 percent to 10+ percent in reduced truck capacity.
  • The low unemployment numbers would normally push wages north and create more disposable income helping retail sales. When will this happen and begin to drive higher retail replenishment?
  • Drivers are already hard to find and wages are rising to attract and retain drivers. What happens when the GDP increases and more truck capacity is required? Where will the drivers come from? One thing is sure and that is intermodal rail will be the beneficiary.
  • Congress is planning on introducing tax reform that reduces the corporate tax rate allowing for greater cap-x spending and growth. When and if this happens, it will provide a tremendous boost to the economy driving a greater need for capacity. 

Bottom line, hang onto your hat. It’s going to be a bumpy ride. 

Rail volume increases 

The Association of American Railroads (AAR) reports that U.S. railroads logged 268,364 carloads for the week ending Aug. 12 for a 0.3 percent increase compared with carload activity as the same week in 2016. 

Combined with intermodal volume, U.S. railroads posted 548,790 carloads, containers and trailers during the week, a 2.7 percent increase compared in the same period. Intermodal volume rose 5.1 percent to 280,426 units for the week. 

Four of the 10 carload commodity groups that AAR tracks weekly posted increases compared with the same week in 2016. They included coal, up 5,689 carloads to 94,593; nonmetallic minerals, up 3,779 carloads to 40,794; and chemicals, up 1,169 carloads to 31,621. 

Commodity groups that logged decreases during the week compared with a year ago included grain, down 6,161 carloads to 19,080; petroleum and petroleum products, down 1,807 carloads to 8,692; and motor vehicles and parts, down 1,277 carloads to 16,166. 

At Wagner Logistics 

Wagner held an eclipse party and sent glasses to our locations to celebrate the rare occasion. We also hosted Representative Sam Graves for a visit at Wagner. Sam is the Chairman of the House Subcommittee on Highways & Transit and was welcomed to discuss the Congressional agenda, infrastructure, tax reform and a long-term fix to the Highway Trust Fund. It was an informative hour. 

We are gearing up for the holiday season and expecting a very busy fourth quarter as our consumer goods customers expect a robust holiday season. The I.T. team is rapidly adding retail customers EDI links and designing labels as our clients add new customers this season. 

We continue to seek better methods and increase productivity in our omni-channel fulfillment operations. 

As stated before, we are seeing higher than normal shipping levels for this time of year as our transportation team moves loads on-time and continues to gear up for growth.  

As you execute plans for 2018, please let us know if you are planning to add warehouses or seek help in moving freight. Wagner has been in business for 70+ 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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