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A New Year, a New Administration Begins
Consumers found their collective wallets over the holidays, inflation is on the rise and housing continues to roll. The new administration has inherited an improving economy, with Trump’s tax policies and solid corporate earnings it’s driving the stock market higher. Consumer confidence is high.
The rising Consumer Price Index (CPI), up 2.1 percent year over year in December, companies gain the ability to raise wages, boosting the consumer economy. It also provides the Federal Reserve with their targeted 2 percent CPI goal allowing them to begin raising the Fed lending rate this year.
In short, this is all good news for logistics providers, truckers, railroads and the economy.
Consumers splurge over the holidays
American’s were picky on where they spent as autos and online shopping were the big winners according to the Department of Commerce. They reported that December retail sales were up 0.6 percent compared to November and up 4.1 percent annually at $469.1 billion. For all of 2016, total retail sales saw a 3.3 percent annual increase.
The National Retail Federation (NRF) said holiday sales grew 4 percent in November and December.
The downside for retailers is that brick and mortar stores continued their decline as sales fell 6 percent while online shopping jumped 11 percent. Macy’s, Kohl’s, J.C. Penney and Sears Holdings all reported disappointing holiday sales.
Macy’s is closing 100 stores while Sears has announced 150 store closures.
Retailers continue working to develop better multi-channel fulfillment strategies to get their share of the booming online market as consumers demonstrate they are more willing to point and click than look for a parking space at the mall. For the year, non-store retailer sales grew 13.2 percent due to this trend.
Category winners were autos as dealers discounted heavily to clear their inventories. Furniture and other hard goods also enjoyed an uptick in sales.
Non-manufacturing growth surges
Data issued by the Institute for Supply Management (ISM) shows that the service industry has strong momentum. The ISM non-manufacturing activity index (NMI) December reading came in at 57.2. A reading above 50 signifies expansion, this is good news.
The twelve industries covered by the NMI that showing December growth are: Mining; Retail Trade; Finance & Insurance; Information; Arts, Entertainment & Recreation; Construction; Health Care & Social Assistance; Professional, Scientific & Technical Services; Utilities; Transportation & Warehousing; and Accommodation & Food Services.
The three industries reporting contraction in the period are: Public Administration; Wholesale Trade; and Agriculture, Forestry, Fishing & Hunting.
Distribution center leasing cost continue to rise
Companies that depend on industrial real estate, which is everyone from manufacturers to retailers and 3PLs experienced a sharp increase in lease rates in 2016 from 5 to 23 percent. Nationwide, vacancies were at 5 percent. In some major hubs like Chicago, New York-New Jersey, LA-Long Beach, or Dallas, vacancy is less than 4 percent according to a report by Prologis.
The 3rd quarter report from CBRE said rents topped out at $6.50 per square foot in the U.S. CBRE is projecting rents in 2017 to jump another 5 percent.
E-commerce is a big driver of demand for logistics space, Forrester Research predicts online sales will increase 9.93 percent each year over the next five years.
New construction has been relatively restrained to avoid overbuilding and it is thought that we will soon reach a balance with demand. Space availability is at a 15 year low.
Truckers hoping to catch a regulatory break
With the business friendly administration in place, the American Trucking Associations (ATA) are hoping but not planning for a lot of reversals in regulations.
The electronic logging mandate is still expected to go into effect in December this year if the FMCSA can publish their technical standards in time.
The Trump administration is planning to use the Congressional Review Act (CRA) which requires that an agency issuing a new regulation must submit the rule to Congress and the Government Accountability Office. Once received, members of Congress take action and pass a resolution in the House and Senate sending it to the President for signature.
Since government moves slowly it’s very hard to unwind regulations. A resolution can be used to overturn a rule only if the rule was enacted within 60 legislative days.
The only time this rule was successfully used was in March 2001 to roll back the hotly contested ergonomic regulations under the Clinton administration.
Trucking market gains momentum
In the week ending January 21st, DAT Solutions reports that after truckload volume jumped 18 percent the previous week, spot volume fell back 14 percent. The number of available dry van loads increased 14 percent last week while van load posts were down 16 percent. The van load-to-truck ratio fell a full point from 3.9 to 2.9 loads per truck with the national average van rate down 2 cents over the past week to $1.70 per mile, its lowest level in the past four weeks.
Available truck capacity increased 13 percent and load-to-truck ratios fell for all equipment types. It should be noted that freight volume and load-to-truck ratios started out higher than normal for this time of year and it’s usual for load counts to decline.
What will truckload rates do in 2017?
As the year started with above normal volume and a forecast for a higher national GDP in 2017, it’s likely that we will see rate increases in the 3-6 percent range. When the ELD mandate goes into effect at the end of the year rates will rise further.
In that spot pricing tends to be a precursor for contract rates, it’s worth noting that in November last year dry van spot rates were 4.5 percent higher than contract rates.
Something else to remember is that carriers pull truck drivers from the same labor pool as construction workers. Whenever a large infrastructure bill is passed and the time comes to shovel the dirt, history has shown us that people would prefer to be home and report to a job site as opposed to going out on the road to deliver freight. Finding drivers will be harder and pay will once again rise.
Rail volumes rise vs. 2016
The Association of American Railroads (AAR) reported U.S. rail traffic for the week ending January 21st was 530,299 carloads and intermodal units, up 8.1 percent from the same week in 2016.
Total carloads handled for the week were 262,496, up 10.7 percent year-over-year. 267,803 containers and trailers were handled driving up intermodal volume by 5.8 percent when compared to 2016.
For the first three weeks of 2017, U.S. railroads reported cumulative volume of 736,865 carloads, up 2.5 percent from the same point last year; and 751,080 intermodal units, down 3.2 percent from last year. Total combined U.S. traffic for the first 3 weeks of 2017 was 1,487,945 carloads and intermodal units, a decrease of 0.5 percent compared to last year.
At Wagner Logistics
Wagner is off and running in 2017 as we remain optimistic about the year. With the economic tailwind I’m seeing, I believe Wagner, like many will find greater opportunity.
If you have a project in mind that you’d like to discuss, please give me a call. If you have a distribution center or transportation RFP you are preparing I’d consider it an honor to be able to compete for your business.
We have been in business for 71 years, bring us 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.