Supply Chain Blog

It's not too hot and it's not too cold

Dear Friends,

It’s not too hot and it’s not too cold, it’s the Goldilocks economy. The annual rate of growth in gross domestic product (GDP) in the third quarter was 3 percent, we have the strongest six-month expansion since mid-2014.  Solid consumer and business spending on goods and shipments helped fill all modes of transportation. 

The broader economic gains came along with strong third-quarter earnings reports that showed consumer spending and recovery efforts from the recent hurricanes is pushing more shipping demand. 

Consumer spending on durable goods such as appliances rose at an 8.3 percent annual rate in the third quarter and business spending on equipment rose at an annual 8.6 percent pace. That spending, along with strong expectations for holiday sales in the fourth quarter, has companies restocking, inventory replenishment made up nearly three-quarters of a percentage point of GDP. 

Wages are moving up, inflation is still in check and housing prices continue to rise along with sales of homes. It’s not too hot and it’s not too cold. It’s just right as full employment is here. Let’s look at some details. 

GDP Rises 

The Commerce Department reports in their initial assessment (to be revised twice more) that the nation’s gross domestic product (GDP), a key indicator of economic strength, expanded at an annual rate of 3 percent in the third quarter. 

The hurricane destruction was outweighed by the continued spending of consumers and businesses. It had been expected that Harvey and Irma would blow up the third quarter GDP. The job market is lively, and the stock market has rallied to record highs. Chief executives and consumers are more confident than they have been in more than a decade. 

Personal consumption, although down from the previous quarter, grew 2.4 percent. Nonresidential fixed investment, a measure of business spending, expanded at a huge rate of 3.9 percent. 

The weak dollar is making exports attractive and international trade contributed positively to output for the third quarter in a row. Imports decreased. 

Consumers are confident

Consumer confidence rose more than expected in October pushing the Conference Board’s index to the highest level in almost 17 years. Americans are feeling good about the economy and job market. Some key points: 

  • Confidence index rose to 125.9 (est. 121.5), highest since Dec. 2000, from 120.6 in September
  • Present conditions measure increased to 151.1, highest since 2001, from 146.9
  • Consumer expectations gauge rose to 109.1, a seven-month high, from 103
  • Improvement in household confidence helps underpin their spending, about 80 percent of the economy. 

The University of Michigan’s consumer sentiment index climbed in October to the strongest since the start of 2004 and the Bloomberg Consumer Comfort Index is near the highest level of the expansion. 

Durable goods sales increase 

New orders for durable goods (products designed to last at least three years), like refrigerators and autos, increased a seasonally adjusted 2.2 percent in September from a month earlier, per the Commerce Department. 

That marked the second month in a row of higher orders, suggesting manufacturers headed into the fourth quarter on strong footing. Orders are a closely watched indicator of economic activity. 

Underlying business investment, beyond aircraft, is booming. New orders for nondefense capital goods excluding aircraft, (a proxy for business spending on equipment), rose 1.3 percent, the third consecutive monthly gain. 

September’s higher durable-goods figures were led by a 5.1 percent rise in transportation equipment orders, and orders for civilian airplanes and parts rose 31.5 percent, reflecting strong demand for the nation’s largest aerospace firm, Boeing Co. 

Trucking companies report mixed results 

Truckload companies are reporting mixed results in their third quarter earnings reports as some see greatly improved results and others hold steady. Here are a few examples: 

Werner Enterprises Inc. reported net income surged 19 percent in the third quarter, totaling $22.5 million, while earnings per share improved to 31 cents from 26 cents a year earlier. Revenue edged higher by 4 percent, totaling $528.6 million. 

The parent to trucking companies Covenant Transport, Southern Refrigerated Transport (SRT) and others, reported its profits leaped 58.6 percent in the third quarter. Covenant Transportation Group Inc. had net income of $4.6 million, or 25 cents per share, compared with net income of $2.9 million, or 16 per share, in the third quarter of 2016. 

Total revenue was $178.6 million, an increase of 8.6 percent compared with the third quarter of 2016. 

Marten Transport Ltd. reported net income was nearly the same in the third quarter, totaling $7.9 million, or 14 cents share, compared with $8.4 million, or 15 cents per share, a year earlier. Revenue in the most recent quarter was also nearly unchanged from the same time in 2016, totaling $170.7 million for the company. 

Drivers are the number one challenge 

Finding and keeping drivers is the biggest problem facing the trucking industry according to the American Transportation Research Institute’s annual top industry issues report, jumping six spots higher, followed by two concerns closely related to drivers: electronic logging devices (ELDs) and hours of service. 

Most issues on the list are all related to drivers including ELD implementation in December, hours of service (the 34-hour restart provision) and lack of parking space that eats into the driving hours looking for a place to park. Driving through congested urban areas also eats into the hours available so the rigid reporting through the ELD doesn’t prove much flexibility. 

Driver turnover remains at extremely high levels with 90 percent turnover at large truckload carriers, fleets are working hard to reduce this number. Fleets currently spend more on driver wages and benefits combined than they do on fuel costs. 

The push to retain drivers is evident in announcements from many motor carriers who are focused on incentivizing drivers to sign and stay on board. A guaranteed base pay and sign-on bonuses are being widely used. There are opportunities for safety and MPG bonuses, in-cab DirecTV, affordable healthcare plans and paid orientation. 

The ELD implementation is set to begin Dec. 18th . At the beginning, it will be in two phases – fines starting in mid-December, then violators placed out of service starting next April 1. All this could change if congress steps in, but it’s not likely. 

Current truckload market 

According to DAT Solutions, in the week of October 22nd through 28th the national average rates for vans and reefers declined for the third week in a row, while flatbed rates held steady after climbing for the past two months. Rates remain elevated for this time of year for all three equipment types. The national average van rate dipped 1¢ to $2.03 per mile. Reefer rates also dropped 1¢, to $2.32 per mile. The national average flatbed price was unchanged at $2.34 per mile as building materials continue to move to Florida and the Gulf Coast. 

Load-to-truck ratios are also high for all three trailer types showing freight remains plentiful while capacity is thin. 

At Wagner Logistics 

Our newest distribution center operation went live in Raphine Virginia supported by several Wagner associates from around the country. The customer is happy and reports a seamless transition from their previous provider at the 600,000-sq. ft. distribution center. We welcome our new 60 associates to the Wagner Logistics team. 

Wagner’s transportation group has added some business in this difficult market and is working hard to match capacity with our customer lanes. As carriers decline loads our phone rings as the team jumps into action to keep the freight flowing. 

Our IT team is looking at upgrades to our business intelligence system as well as developing tablet solutions in our warehouse to enhance our processes. We believe we can drive significant cost savings through tablet solutions.  

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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