Solid Numbers Warm Early Arctic Blast
John Wagner Jr. oversees the upcoming holiday shopping season in regards of retail sales opportunities, online shopping and industrial production, including the latest transportation and intermodal news and challenges.
The arctic chill is hitting most of the USA early this year, but retail sales heated up in October by 0.3 percent. The Census Bureau reports that most retailers benefited with the exception of electronics and appliances, which fell 1.6 percent. If you don’t count gas stations where sales fell due to lower fuel prices, retail sales were even higher, up 0.5 percent. Even Wal-Mart, which had been struggling, reported solid sales.
Here are some of the retail winners:
- Auto sales – up .5 percent
- Non-store retailers – up 1.9 percent
- Sporting goods and music stores – up 1.2 percent
- Health & personal care stores – up .7 percent
- Clothing stores – up .5 percent
Comparing October 2014 to October 2013, total retail sales increased 4.2 percent, providing a little momentum heading into the holiday shopping season.
The Census Bureau also said that the inventory-to-sales ratio was unchanged in September. This I/S ratio measures inventories across the supply chain including manufacturing, wholesale, and retail. Any time inventory builds beyond sales it can be cause to worry but right now this measure is looking good.
In the e-commerce sector, the Commerce Department said that online sales continue to skyrocket, increasing by 16.2 percent in the third quarter, year over year, to a seasonally adjusted $78 billion. This amounts to 6.6 percent of overall sales, more than triple the 2.1 percent share 10 years ago.
When you remove auto sales, major appliances, restaurants, and gas station sales (anything that can’t be picked/packed/shipped), the online share of retail sales climbs to about 10 percent, an impressive number.
The Federal Reserve reports that U.S. industrial production, which measures factory, utility and mining output, fell a seasonally adjusted 0.1 percent in October from September. The continued decline in oil prices helps consumers but hurts producers. The economic weakness in Europe and Asia combined with the strengthening U.S. dollar will continue to hurt exports. The fourth quarter is off to a slow start for manufacturing but a rise in consumer spending could help rescue the quarter for factories.
We have a number of reports to review.
- The DOT’s freight transportation services index increased to an all-time high for the second month in a row.
- The Department of Transportation index increased 4.2 percent to 121.5 in September, compared to September 2013. The previous record of 121.3 was set in August this year. The index rose 0.3 percent from August sequentially to September. This index measures freight moving in all modes including truck, water, pipeline, air and rail.
- The DOT said all modes grew in September except rail carloads, which were unchanged.
- The FTR Trucking Conditions Index slipped in September but stayed in positive territory, showing a positive market trend for motor freight. The index fell 0.02 to a reading of 9.07. FTR says that unless there are further regulatory moves impacting carrier productivity or a drop in the economy, the trucking industry should continue to do well.
- The DAT North American Freight Index showed that the spot market for freight remained robust in October, continuing a very strong demand for truckload capacity. This winning streak has lasted for 15 months, with volume increasing 25 percent year over year.
- Year over year in October, dry van rates increased 15 percent, reefer rates are up 18 percent, and flatbeds are plus 16 percent.
- Lastly, the American Trucking Associations weighed in with their advanced seasonally adjusted for-hire index. ATA said that truck tonnage hit the second highest level on record, rising 4.5 percent in October in a year-over-year comparison. ATA’s index rose to 132.1, just short of the record reading of 132.6 in August. Sequentially the October index reading rose 0.5 percent from September.
More Carrier Challenges
As if carriers didn’t have enough challenges with driver hiring and retention, along with governmental regulations, there are concerns about rising insurance costs. The Federal Motor Carrier Safety Administration submitted its Advance Notice of Proposed Rulemaking (ANPR) to the White House Office of Management and Budget, exploring the subject of minimum insurance for carriers. While no dollar amount is referenced the FMCSA will seek public comment.
Currently the insurance minimum is $750,000 for general freight and $1 million for hazardous cargo, mostly carried by smaller carriers that make up 90 percent of the trucking industry. Larger carriers are lobbying for the higher insurance as they are more easily able to carry higher limits due to their financial strength.
Estimates show that doubling the coverage amounts would increase a carrier’s insurance cost by 25 percent, which would be a burden on most small truckers.
Holiday Shipping Wars
The National Retail Federation forecasts an 11 percent boost in e-commerce sales this season. USPS announced it would service consumers seven days a week from now through Christmas in order to compete with FedEx and UPS. USPS expects to handle 12 percent more packages this year, about 450 to 470 million packages. FedEx has likewise staffed up.
For the first time since The Intermodal Association of North America (IANA) began tracking data, domestic volumes were greater than international volumes on a seasonally adjusted basis.
Intermodal volume was led by strong domestic container traffic (+7 percent) in the third quarter. IANA said in its Intermodal Market Trends & Statistics Report that international container volume grew more slowly (+4.7 percent) in the same period from the second quarter.
The Association of American Railroads said intermodal traffic increased 2.2 percent compared with the same week last year, to 271,113 trailers and containers in the week ending Nov. 8. Rail carload volume, which excludes intermodal units, increased 0.2 percent year over year to 297,694 carloads.
Class I rail performance continues to struggle with high carload demand and infrastructure challenges. So far in the fourth quarter velocity is down 7 percent year over year and terminal dwell time is up 13.9 percent. BNSF continues to be the laggard in Class I service.
At the Ports
The lack of a new contract between the Pacific Maritime Association and the International Longshore and Warehouse Union (ILWU), in addition to other operational issues, has created a crisis on the West Coast wharfs. I am hearing horror stories about retail vendors dealing with record congestion, causing containers to be tied up for four weeks or more.
With Black Friday looming, many companies are being severely hurt by a combination of this congestion, Teamster strikes and an ILWU work slowdown. The National Retail Federation and 100 other groups have asked the president for federal mediation to get the talks moving in a positive direction.
A chassis shortage, exceedingly slow truck turn times at the wharf, and the newer megaships carrying many more containers are compounding the difficulties. To add to the misery, a fire Sept. 23 temporarily shut down three of the six cargo terminals at the Port of L.A. Slow rail service and equipment shortages are also being blamed for clogging the supply chain.
Many companies are being forced to fly in merchandise and critical parts at a premium cost because their inventory shipments are tied up at the ports.
The only potential upside to all of this might be for consumers. There will be deals as vendors look to sell off this delayed stock. Look for off-price retailers to clear out a lot of this merchandise in January after it misses its holiday shelf time.