Supply Chain Blog

Hurricanes, recovery and a stronger than expected economy

Dear Friends,

 

While still cleaning up from one hurricane in Houston, another is tracking to hit Florida, Georgia and the Carolinas this weekend into early next week. As one would expect, there is tremendous personal loss and business disruption from these events. 

At Wagner Logistics, we are proud to associate ourselves with the ALAN network. The American Logistics Aid Network does great work in coordinating disaster relief with Federal and State authorities using warehousing, trucking and freight brokerage companies who donate their time, assets and material handling equipment to assist with recovery. 

If you are inclined to donate to the relief effort, ALAN is worth consideration. 

Lots of economic news this last week along with a strengthening freight market. Let’s take a look at the numbers. 

Job growth slows 

The Labor Department reports companies added 156,000 non-farm jobs in August, which was less than analysts were expecting. The U.S. unemployment rate ticked upward from to 4.4 percent from the 16-year low of 4.3 percent the month before. 

While companies go begging for people with the right skill sets, it remains a challenge to fill all of the jobs as we approach what is considered full employment. 

The for-hire trucking industry dropped 1,600 jobs in August, while the wider transportation and warehousing sector added 1,900. 

Job gains occurred in manufacturing, construction, professional and technical services, health care and mining. Manufacturing employment rose by 36,000 in August and has added a total 155,000 jobs since a recent employment low in November 2016. 

Wages are not escalating – yet. Growth in pay is stuck at 2.5 percent over the last five months. 

Manufacturing improves in August 

The monthly survey of purchasing managers by the Institute for Supply Management (ISM), a gauge of economic activity in manufacturing, increased to a level of 58.8 from 56.3 in July. This marked the highest level since April 2011. 

As regular readers know, a reading over 50 indicates expansion, while below 50 signals contraction, 58.8 shows strength in manufacturing, it makes up about 12 percent of our economy. 

The New Orders Index registered 60.3, a drop of 0.1 point from the July, while the Production Index registered 61, a 0.4 point increase. 

Of the 18 manufacturing industries surveyed, 14 reported growth in August. 

Construction Spending Disappoints 

The Commerce Department tells us that construction spending in July dropped unexpectedly, falling 0.6 percent from June to a seasonally adjusted annual rate of $1,211.5 billion, a nine-month low. 

When July is compared to the same time a year ago, activity increased 1.8 percent. The pace during the first seven months of 2017 is 4.7 percent better than it was year-over-year. Multi-family and single family homes remain bright spots. 

Consumer sentiment still positive 

The University of Michigan Survey of Consumers made both month-over-month and year-over-year gains in August. Despite political turmoil, the index has been higher during the first eight months of 2017 than in any year since 2000. This was the peak year of the longest expansion in U.S. history. 

Likewise, the Conference Board said its Consumer Confidence Index, which had increased in July, improved further in August. The index now stands at 122.9 up from 120 the month before and well above last year’s average of 99.8. 

Americans are seeing job security, low inflation, gains in their home value and 401Ks so they remain positive about the future. The tidal wave of news from Washington is not affecting their outlook. 

Second quarter GDP revised up 

The Commerce Department revised their second quarter estimate of the gross domestic product upwards from 2.6 percent to a 3 percent reading. President Trump is shooting for 3-4 percent GDP growth, counting on a strong economy to finance tax reform and infrastructure spending. 

Durable goods orders 

Durable goods orders fell 6.8 percent in July, but the drop was driven by aircraft orders, which had jumped the month before. Taking out the volatile transportation category, orders rose 0.5 percent from a month earlier and up 5.6 percent from a year earlier. 

Business investment is rising at a faster rate than overall economic growth for the first time since late 2014, evidence of momentum in an eight-year-old economic expansion has been restrained by slow productivity growth which is sometimes the result of underinvestment. U.S. business investment rose at a 5.2 percent pace during the second quarter, following a 7.2 percent increase in the first quarter. 

Confirming business optimism, The Business Roundtable’s gauge of chief executive plans for capital spending, hiring and projections for sales over the next six months reached its highest level in three years in the second quarter. 

Transportation disruption – prepare for rates to rise as capacity tightens 

America’s fourth largest city saw well over 30 inches of rain and catastrophic flooding that disrupted all modes of transportation. Ships, railroads and trucking were all affected in the Houston area putting a halt on the movement of goods. 

Alternate plans for rerouting cargo and re-setting supply chains occurred affecting people and businesses across south Texas and Louisiana. 

Besides the closing of refineries which are driving up fuel costs, the recovery is expected to tie up 10 percent of the nation’s trucking capacity and causing spot rates for trucking to jump and jump they did. 

In the first full week after Harvey, August 27 to Sep 2, dry van rates soared an average of 12¢ per mile nationwide as a result, while reefer rates rose 3¢ and flatbeds added 2¢. Also on the rise are diesel prices, which increased an average of 15¢ per gallon nationally, due to closure of many Houston-area refineries. 

Kansas City Southern, BNSF, and Union Pacific came to complete stop from Laredo through Beaumont and Houston. Rail facilities were either underwater or inaccessible by road. Railroads are at work restoring service as they remove debris and repair their infrastructure as quickly as possible. 

As I have been saying for a while now, freight rates were already going up prior to Harvey. Add in what the recovery effort will require after Irma hits Florida and we are going to see the mother of all capacity shortages. 

Remember the 2014 truck shortage and how freight costs soared? The Longbow Trucking Barometer for August shows it trending to 2014 levels and this is before the hurricane season effect. The Longbow Dry Van supply/demand index which is representative of spot market activity, is up 67.4 percent year-over-year and on a five-week moving average basis is up 79.5 percent year-over-year. 

Railroad traffic increases 

According to the Association of American Railroads (AAR), U.S. railroads logged a 2.6 percent increase in combined carload and intermodal traffic in August compared with the same month last year. 

A 5.6 percent increase in intermodal containers and trailers helped push the railroads' total combined traffic to 2,744,486 million units for the month compared with August 2016. Total carloads last month slipped 0.3 percent to 1,343,405 units. 

Seven of the 20 carload commodity categories tracked by AAR on a monthly basis saw carload gains compared with August 2016. They included metallic ores, up 4,550 carloads or 16.1 percent; crushed stone, sand & gravel, up 14,506 carloads or 12.1 percent; and coal, up 25,926 carloads or 5.8 percent. 

Carloads that posted decreases last month compared with a year ago included grain, down 24,565 carloads or 20.4 percent; petroleum & petroleum products, down 8,362 carloads or 15.8 percent.; and motor vehicles & parts, down 10,321 carloads or 11.2 percent. 

For the first eight months of 2017, total U.S. rail traffic climbed 4 percent to 18,414,205 carloads and intermodal units compared with the same period last year. Total carloads increased 4.5 percent to 9,062,097, while total intermodal containers and trailers rose 3.4 percent to 9,352,108 units. 

At Wagner Logistics 

Business is brisk at Wagner as we tackle a new large distribution center project in Virginia and hire/on-board, and train 70 new associates to the Wagner Way. 

Wagner is actively planning our emergency response at our two distribution centers in Jacksonville, Florida which we expect to be hit early Monday by Irma. Stacking trailers closely together to avoid blowing over and securing facilities while making sure we have good communication lines set up with our associates is underway. We are also taking inventory back into the building from carriers who will not be able to make deliveries in the aftermath of the hurricane. 

Wager Logistics is proud to be making matching donations along with our associates to ALAN as we pray for the people in Florida and Texas affected by these disasters.  

Wagner has been in business for 70+ years and we want to hear about your challenges. Please let me know if we may help with your fulfillment, new distribution center project, or simply get your freight moved. As we say every day, 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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