Reading The Mixed Tea Leaves and Fighting Off High Freight Costs
There are mixed messages in the economic data as we enter the last quarter of the year. What does this mean for the economy and logistics industry in the run up to 2015?
Let’s lead off with housing and notice that new home starts slumped in August after having been on a streak of gains for months. The Commerce Department said new home construction fell 14.4 percent for the month. Permits dropped from 1.06 million in July to 998,000 in August. Single-family permits fell 2.4 percent to 643,000.
Building a housePreviously owned homes also suffered as the National Association of Realtors pending sales index dropped 1 percent in August after being up 3.2 percent in July. This pending sales index came in at 104.7, which is still good. Any reading above 100, the historic healthy benchmark number from 2001, is considered strong.
Is the lack of wage growth causing this slowdown in housing? Tighter lending standards? I do know the logistics industry thrives on building materials, furniture and appliances, so we need to see if this is just a breather or a change in the trend.
Consumer Spending Still Hot
The cooling of the housing industry didn’t affect other consumer spending. The Commerce Department reports consumer purchases increased at a nice rate, gaining 0.5 percent as incomes increased 0.3 percent. After consumer spending fell 0.1 percent in July, this is welcome news.
Durable goods sales were up 1.9 percent in August, the largest increase in five months. Autos and light trucks are continuing to sell at a brisk annualized pace of 17.5 million units.
The National Retail Federation reported that August retail sales increased 0.5 percent seasonally adjusted month over month and 2.7 percent unadjusted year over year. With the exception of general merchandise stores, all retail categories improved over the July results. Back-to-school sales, although aided by discounting, were particularly strong in apparel and electronics.
The Institute for Supply Management's manufacturing purchasing managerss index dropped off in September, falling to a 56.6 reading from August's 59.0, which was the index's highest level since March 2011. Of 18 reporting industries, 15 reported growth in September. With unrest in Hong Kong, the war in Iraq/Syria, and the Ukrainian/Russian events occurring, geopolitical problems have the potential to impact U.S. manufacturers’ exports.
The ISM new orders index dropped to 60.0 in September from August's reading of 66.7 and the exports index fell slightly to 53.5 from 55.0.
In transportation, the American Trucking Associations’ August truck tonnage leapt 4.5 percent in year-over-year comparison, setting a new record at 132.6. The ATA’s seasonally adjusted “for hire” index was up 1.6 percent in August from July. Factory activity and retail sales are credited with this surge in trucking. Tonnage is up 3.1 percent year to date.
The Cass indexes also reflected higher August shipment activity. Shipments were up 2.3 percent from July and 4.9 percent higher than August 2013. The Cass expenditure index slipped 0.3 percent from July to August.
What Can You Do About Rising Freight Costs?
It appears that the capacity crisis is moderating somewhat for now. But we’re still in a serious upward pricing mode. Here are a few questions a shipper can ponder to help slow this trend.
- Can you optimize your shipments through a Transportation Management System to find the best balance of price and service? Do you have a good TMS?
- Can you perform a mode shift converting a truckload shipment into an intermodal one? Perhaps you can negotiate volume pricing with an LTL carrier to handle your truckload.
- Can you combine/consolidate LTL shipments, making a truckload or a pool truck?
- Can you make your distribution center more driver-friendly? Provide a clean break room and restroom for the drivers? Can you allow drivers to drop and pull trailers or are they required to stick around for a live load or unload?
- Can you pay your freight bill sooner than later? Companies that ask for 60- or 90-day payment terms are paying for that privilege, driving up their carrier costs.
- Can you collaborate with your carriers to help them get better equipment and driver utilization?
Look for freight costs to continue rising in the coming year, so it makes sense to have a driver-friendly dock to help you become a preferred shipper.
Records on the Rails
Freight TrainOn the rail side, U.S. freight railroads set records in the last three weeks of September with nearly 280,000 intermodal shipments shipping each week, according to the Association of American Railroads. Performance on the rails continues to be a problem as intermodal trains are running 8 to 9 percent slower. The railroads are working hard to correct the service issues and are hiring people to staff up.
Here at Wagner
At Wagner we are firmly in the holiday season as retailer pallet display building and fulfillment is at its peak. Transportation is also very busy as we perform above budget, moving loads and performing well.
At our home office in Kansas City we are also enjoying the results of the Monday night Chiefs victory and the AL Wildcard and ALDS games sending the Royals into the postseason.
I know that many of you are working on your budgets this time of year. Please reach out if there is a weak spot in your distribution network or you are planning a project for 2015. We would love to collaborate with you. Bring it!
Have a great day,
John Wagner Jr.
About Wagner Logistics
Wagner Logistics is a leading supply chain management provider offering distribution center, fulfillment and transportation services across the United States. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dumas AR, Dallas TX, and Clinton, IA, Kansas City MO and KS. Wagner combines high-tech tools with high-touch product pampering to ensure that inventory is where it needs to be, when it’s needed, in the condition customers expect. From product displays to complex fulfillment to vertical supply chains for fragile products, we want to tackle your biggest challenges. Bring it!