Supply Chain Blog

The Economy Rises, Will Trucking Keep Pace?

Dear Friends,

The economy is recovering from the storm hits in Houston and Florida while retail sales are up along with industrial production. All of this is effecting the transportation markets, especially trucking. Spot rates are very high for truckload freight and this is a precursor to the upcoming months when companies traditionally issue their annual bids for their freight. 

Large trucking companies like Werner and J.B. Hunt are setting expectations for a 10 percent plus rate increases, shippers need to prepare for significant increases in what they pay to move their loads. Truckers are seeing their driver pay and equipment costs escalate as well as the regulatory effect of the coming ELD mandate in December. 

Capacity is tight and will be getting tighter, it will exceed the troubles the industry went through in 2014. It’s time to talk with your carriers and work together to keep your pricing under control. 

Consumers do their part 

The United States Department of Commerce released their September sales data along with the National Retail Federation (NRF). The news was good showing a gain of 1.6 percent from August to September and an annual increase of 4.4 percent. 

NRF said that September retail sales were 0.5 percent ahead of August on a seasonally-adjusted basis and up 3.2 percent annually on an unadjusted basis. The winners were building materials and supplies stores up 2.1 percent over August, online and other non-store sales up 0.5 percent and general merchandise stores were up 0.3 percent. 

The NRF has issued a positive holiday season retail sales forecast for the months of November and December excluding autos, gas and restaurant sales. For 2017, NRF is calling for holiday retail sales to be up 3.6 to 4 percent, coming in at an estimated total between $678.75 billion to $682 billion, which is ahead of last year’s $655.8 billion. 

Excluding automobiles, gasoline, building materials and foodservices, so-called “core retail sales” increased 0.4 percent last month after being unchanged in August. 

Industrial production up slightly 

Despite hurricane related disruptions, U.S. industrial output picked up modestly in September. The Federal Reserve reports that industrial production—a measure of output at factories, mines and utilities—increased a seasonally adjusted 0.3 percent in September from August. The Fed estimated Hurricanes Harvey and Irma held down the growth in total industrial production in September by 0.25 percentage point. 

Industrial output was up 1.6 percent on the year to September and capacity utilization, reflecting how much industries are producing relative to their potential output, rose by 0.2 percentage point to 76.0 percent in September. 

CPI rises 

The Labor Department has told us that the Consumer Price Index (CPI) rose 0.5 percent in September, the biggest jump in eight months. Year-over-year this is a 2.2 percent increase. 

The increase can be blamed on the spike in energy costs as gasoline surged 13 percent higher in September from August. We are paying 20 percent more for gas than we did a year ago. 

A separate Labor Department reports a 0.4 percent increase last month in the Producer Price Index following a 0.2 percent gain in August. 

Consumer sentiment jumps 

A report on consumers’ feelings during October showed a measure soaring to its highest level in just over 13 years. 

The University of Michigan Survey of Consumers showed strong gains from the month before and year over year in its measures of consumer sentiment as well as their feelings about current and future economic conditions. 

The October gain was broadly shared, occurring among all age, income subgroups and across all partisan viewpoints. This bodes well for the holiday shopping season. 

Freight measure hits an all-time high 

According to the Transportation Department, the amount of freight moved by U.S. for-hire transportation providers hit an all-time high again in August breaking the record set the month before. 

The Freight Transportation Services Index (TSI) increased 1.5 percent in August to a reading of 130.7, which is also a 6.7 percent gain from August 2016.  This is the largest year-over-year gain in nearly seven years. 

The Freight TSI’s new all-time high in August is also 4.6 percent above the level of July 2016, the highest level prior to 2017. August was the second all-time high in a row, and the third in four months. 

Measuring the month-to-month changes in the for-hire freight shipments by mode in terms of ton-miles, the Freight TSI is created. The index consists of data from for-hire trucking, rail, inland waterways, pipelines and air freight. 

The August increase in the Freight TSI was driven by a large gain in trucking and smaller gains in air freight and rail intermodal. Water and pipeline freight decreased while rail carloads were stable. 

Trucking challenges 

The combination of the electronic logging device mandate, a shortage of drivers and an improving freight market has carriers warning about stiff price increases and shippers on the defensive heading into 2018. 

For trucking companies, the potential for rate increases could help offset costs tied to driver pay and turnover as the driver market tightens. 

The National Driver Wage Index, which measures over-the-road driver pay, rose 0.9 percent year-over-year in the second quarter, but it’s likely the index will grow at a faster pace on strong gross domestic product data and the ELD mandate. The rate increases are necessary to offset the expected productivity loss from ELDs and to mitigate turnover. It’s better to offer more pay to your existing drivers than wait for them to leave for better compensation elsewhere, with turnover at larger fleets at an annualized rate of 90 percent. 

It’s expected that shippers will try and get lower percentage increases by moving up their freight bids this year instead of waiting for the traditional first quarter bid period. 

Besides the ELD mandate, more freight, and hurricanes, we also have the effect of major retailers demanding that their loads be delivered exactly on time. Carriers cannot be late or early so this has the effect of taking capacity out of the market as a carrier must wait for their appointment time the next day. 

Look at Wal-Mart, they penalize vendors who deliver freight too early or too late. The initiative, “On-Time, In-Full”, rules that products arrive at the scheduled delivery time 75 percent of the time, a standard that will rise to 95 percent next year. Wal-Mart fines suppliers up to 3 percent of the shipment’s value if they don’t meet the benchmarks. Truckers have the burden of compliance. 

Spot rates remain high 

DAT Solutions weekly gauge of spot rate activity for the week of October 8th through 14th saw dry van rates slip two cents a mile for an average national rate-per-mile of $2.07. The van rate hasn't been that high since late 2014. During the last week of September, the van load to truck ratio hit 7.0 loads per truck, the highest ever recorded in DAT Trendlines, which was first published in 2010. Flatbed pricing surged to $2.33, up two cents from the week before as construction and hurricane recovery sucks up capacity. 

Load-to-truck ratios remain high and above the seasonal norm for all equipment types. 

The demand for capacity should go through the holiday season as e-retailers and traditional retailers stock and replenish their inventories. Increased industrial output, home construction, and consumer spending should keep truckers busy handling freight into the new year. 

Railcar loadings and intermodal rises 

The Association of American Railroads (AAR) said that U.S. railroads experienced a 6.3 percent increase in carload and intermodal traffic for the week ending Oct. 7 compared with the same week a year ago. Total carloads for the week rose 2 percent while intermodal volume soared 10.8 percent. 

Seven of the ten commodity groups that AAR tracks weekly had increases compared with the same period in 2016. They included nonmetallic minerals, chemicals, metallic ores and metals. 

Commodity groups that posted decreases during the same period include coal, grain, motor vehicles and parts. 

For the first 40 weeks of 2017, U.S. railroads reported total combined traffic of 21,094,038 carloads and intermodal units, up 3.7 percent. 

At Wagner Logistics 

Anticipation is high as we begin our newest distribution center operation this weekend in Raphine, Virginia. Much of our team will be on-site Sunday as Wagner takes over responsibility for the facility and associates. 

As transportation pricing rises, the professionals in Wagner’s transportation group are doing well with managing the available capacity and servicing our 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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