Supply Chain Blog

Economic & freight disruption continues

Dear Friends,

Last week I attended the Council of Supply Chain Management Professionals (CSCMP) annual conference in Atlanta. There were several themes regarding the advancement of automation, artificial intelligence and digital disruption. What really caught my ear was the presentation and side-bar conversations with truckers. 

The hurricanes have escalated what was already a tightening trucking capacity issue.

There is more freight to carry with the growing economy. The ELD mandate is coming and small carriers are deciding not to implement, leaving less trucks to move cargo. All carriers are having trouble attracting and keeping drivers. This, my friends, is a problem for all of us. 

Remember the difficult freight market in 2014? This has the makings to be much worse as carriers rapidly escalate pricing as contract renewals take place. Let’s look at the economy before we dig into the transportation scene. 

Manufacturing is growing 

The Institute for Supply Management (ISM) released their September Manufacturing Report on Business showing that their PMI index grew 2.0 percent to a 60.8 reading. As a reminder, any reading over 50 indicates growth so 60.87 is a solid growth number. 

This is the 13th straight month of growth and the PMI is at the highest level since August 2011 high mark of 59.1. Of the 18 industries contributing to the report, only one reported a decline- furniture and related products. 

New orders are up 4.3 percent to 60.8 and production rose 1.2 percent to a 62.2 reading in line with what the Federal Reserve is reporting. 

Inventories fell 3 percent while supplier prices rose 9.5 percent. I suspect some of this can be related to hurricane supply chain disruption. 

Construction spending, GDP, durable goods are up 

The Commerce Department reports construction spending in the U.S. during August jumped 0.5 percent from the month before for the best showing since May. 

The August figure is a 2.5 percent improvement year-over-year and for the first eight months of this year, 4.7 percent better than the same period in 2016. 

The Commerce Department reported the nation’s GDP improved at an annual rate of 3.1 percent in the second quarter of the year and on its best pace in two years. 

Economists expect the hurricanes to shave a half point off the third quarter GDP but will be made up in the fourth quarter from related recovery expenditures. 

Trucking – Going nuts 

The American Trucking Associations (ATA) released two key trucking data points: Seasonally adjusted for-hire truck tonnage jumped 7.1 percent in August, following a 0.5 percent gain in July. Compared with the same time last year, tonnage was up 8.2 percent. Year-to-date, compared with the same in 2016, tonnage is up 2.1 percent.  

ATA also released driver turnover rates for the second quarter of the year. Specifically, the annualized turnover rate for large truckload carriers jumped 16 percentage points to 90 percent - the highest level since the final quarter of 2015. This was also the largest quarterly jump since the fourth quarter of 2010.  

For the smaller fleets (less than $30 million in annual revenue), the annualized turnover rate grew by 19 percentage points to 85 percent, the highest since the first quarter of last year. All of this signifies the beginning of significant tightening in the driver market and acceleration of the driver shortage.  

LTL turnover remained very low during the quarter at just a 9 percent annualized rate. This is down one percentage point from the first quarter. 

LTL carriers are seeing very strong demand recently with tonnage strengthening the last few months. Combined with recent truckload tightness and increasing driver pressure, carriers are more optimistic about pricing for next year. Expect LTL pricing to rise 4 to 5 percent in 2018 as general rate increases (GRI) push higher. 

In the truckload market, shippers are experiencing truck capacity shortages in the east coast and southern markets. Some shippers are seeing up to 25 percent of their loads turned down. 

Spot rates right now are running at 100 percent to 200 percent premiums to contractual rates in the impacted hurricane areas. The market should remain this tight until January when it should seasonally start to loosen up. 

Expect truckload rates to surge up to 10 percent in 2018 as contracts are renewed. 

Getting back to present day, DAT Solutions reports that load-to-truck ratios surged for all three trailer types (vans, flatbeds, reefers) in week of September 24th through 30th increased again, exceeding two-year highs. Capacity is tight, as the van load-to-truck ratio hit its highest mark in more than 7 years last week. Load-to-truck ratios for reefers and flatbeds are also at multi-year highs. Here is the national average rate per mile:

  • Dry van rates moved from $1.94 the week before to $1.97 per mile
  • Flatbeds moved from $2.25 to $2.27 per mile
  • Reefers moved from $2.22 the week before to $2.23 per mile 

September activity and surge in intermodal movement  

The Association of American Railroads (AAR) reports U.S. railroads originated 1,044,563 carloads in September 2017, down 2.3 percent, or -24,106 carloads, from September 2016. U.S. railroads also originated 1,080,444 containers and trailers in September 2017, up 3.8 percent, or 39,482 units, from the same month last year. Combined U.S. carload and intermodal originations in September 2017 were 2,125,007, up 0.7 percent, or 15,376 carloads and intermodal units from September 2016. 

Excluding coal, carloads were down 21,257 carloads, or 3.0 percent, in September 2017 from September 2016. Excluding coal and grain, carloads were down 4,928 carloads, or 0.8 percent. 

In the week ending September 30th the U.S. set a new weekly record for intermodal rail traffic. Total U.S. weekly rail traffic was 559,555 carloads and intermodal units, up 1.9 percent compared with the same week last year. 

Total carloads for the week ending September 30th were 272,662 carloads, down 1.6 percent compared with the same week in 2016, while U.S. weekly intermodal volume was 286,893 containers and trailers, up 5.5 percent compared to 2016. 

Five of the 10 carload commodity groups posted an increase compared with the same week in 2016. They included nonmetallic minerals, up 4,739 carloads, to 40,970; metallic ores and metals, up 1,387 carloads, to 23,956; and forest products, up 556 carloads, to 11,054. Commodity groups that posted decreases compared with the same week in 2016 included grain, down 3,993 carloads, to 23,630; coal, down 3,781 carloads, to 88,150; and motor vehicles and parts, down 2,297 carloads, to 17,461. 

The railroads are working collaboratively to increase the attractiveness of intermodal services, but there is still much to be done. As an example, KCS and BNSF recently signed an agreement to operate cross-border intermodal runs which provide both partners with better access to each other’s respective markets. 

At Wagner Logistics

Wagner is executing the implementation plan for on-boarding about seventy new associates in Virginia for a new distribution center operation and ready to go-live on October 22nd. We are excited to get underway and service this customer. 

At Wagner, our growth tends to come from existing customers who have experienced the Wagner Way of doing business, like the ease of doing business, execution and offer more locations. 

The transportation group at Wagner has been successfully dealing with the current difficult freight market and continues to be a broker of choice for carriers through fair dealings and flexibility. 

Wagner’s fulfillment operations are being evaluated for improved efficiencies in preparation of the coming November “Black Friday” and “Cyber Monday” when eCommerce volume can spike 1,000 percent. The ability to scale up and execute in this moment-of-truth is imperative to our fulfillment customers.  

Wagner has been in business for 70+ years and we want to hear about YOUR challenges. Please let me know how Wagner Logistics may help with your fulfillment, new distribution center project, or simply move your freight. 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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