Economic & freight disruption continues
By on Sep 28, 2017
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The cleanup from Irma and Harvey continues while Maria threatens the east coast.
The Institute for Supply Management (ISM) released a Supplemental ISM Report on Business Hurricane Harvey Report, saying that some of the commodities expected to be in short supply due to Harvey include fuel, petrochemical feed stocks and derivatives. Other products include plastic resins, chemicals, electronic components, chemicals (raw) and gasoline expected to be in short supply over the next three months.
Industries expected to be impacted by commodity shortages, include: Plastics & Rubber Products; Food, Beverage & Tobacco Products; Wholesale Trade; Machinery; Chemical Products; Transportation Equipment Manufacturing; Professional, Scientific, & Technical Services; Utilities; Apparel, Leather & Allied Products; Computer & Electronic Products; Furniture & Related Products; Government; Construction; Paper Products; and Primary Metals, with 27 of the 36 industries reporting potential commodity shortages.
On the manufacturing side, ISM reminds us that Texas represents more than ten percent of the U.S. GDP and is the number one U.S. export state at $210 billion, with 45 percent of that figure going into Mexico through cross-border trade, and the other 55 percent exported to non-NAFTA countries.
Retail sales disappoint
Slow auto sales continued in July but due to the tremendous loss of cars in hurricanes this segment is expected to get a bounce as replacement begins. The 0.6 percent overall jump in retail sales in July was cut by the Commerce Department to a 0.3 percent increase.
“Core sales” in August; which exclude automobiles, gasoline, building materials and food services; fell 0.2 percent following a 0.6 percent increase in July.
Despite the disappointing month-to-month performance total retail sales in August jumped 3.2 percent from the same time a year ago.
The hurricanes are expected to shave a half point from GDP figures in the third quarter and that will be recovered in the fourth quarter as building supplies and other goods are bought to replace the damage in Florida, Louisiana and Texas.
Industrial Output Declines
For the first time in six months a measure of the total output from the nation’s factories, mines and utilities was released, showing it declined 0.9 percent in August.
The drop in the Federal Reserve’s Industrial Production Index came as Hurricane Harvey
is estimated to have reduced the rate of change in total output by roughly three quarters of a percentage point.
The Manufacturing Index decreased 0.3 percent. The manufacturing industries with the largest estimated storm-related effects were petroleum refining, organic chemicals, and plastics materials and resins, according to the Fed.
Despite these lower month-to-month numbers, total industrial production in August was 1.5 percent above its year-earlier level. Capacity utilization for the industrial sector decreased 0.8 percent of a percentage point in August to 76.1 percent, a rate that is 3.8 percentage points below its 1972–2016 average.
Consumer sentiment strong but falling
Consumer confidence edged downward in early this month due to concerns over the outlook for the national economy.
The University of Michigan Survey of Consumers found consumers' assessments of current economic conditions improved, however, with the Current Conditions Index reaching the highest level since November of 2000.
The two hurricanes had a greater impact on expected economic conditions in speaking with consumers. Among those who mentioned the hurricanes, the Sentiment Index was 80.2, while among those who did not spontaneously mention either hurricane, the Sentiment Index remained unchanged from last month at 96.8.
Renewed gains in incomes as well as rising home and equity values have counterbalanced the negative impacts from the hurricanes.
Consumer, wholesale prices increase
August’s Consumer Price Index (CPI) increased 0.4 percent from the month before, the largest gain in seven months, pushing the CPI annual rate up to 1.9 percent. With gas prices jumping 6.3 percent, this is the biggest spike in pricing since January.
Taking out volatile food and energy prices from the overall CPI number, it showed a 0.2 percent gain in August, twice the rate it was the previous four months.
Not surprisingly, the Producer Price Index (PPI) moved up 0.2 percent in August despite an expected 0.3 percent increase. This moved its annual rate to 2.4 percent.
Fulfillment and retail hiring accelerates
First it was Amazon and now we hear that Target announced plans to hire 104,500 employees to handle the surge in online and offline demand during the holiday season. That’s up 34.8 percent from 77,500 seasonal employees last year.
Of those employees 100,000 will work in its 1,816 stores while 4,500 will work in its distribution and e-commerce fulfillment centers. The 4,500 figure for its distribution and fulfillment centers represents a 40 percent decline from the 7,500 seasonal employees hired to work in those facilities last year.
That shift could signal that Target plans to lean more heavily on its stores to fulfill online orders this holiday season than it did last year. Fulfillment from stores is an area that has been growing fast for the retailer.
Through the first half of 2017, stores fulfilled more than 40 percent of Target’s online orders, while in-store pickup of online orders has grown by 30 percent year-over-year through the first six months of the year.
1-800-Flowers.com Inc. announced plans to hire 8,000 seasonal employees, mostly in Illinois, Ohio and Oregon. E-commerce vendor Radial said today it will hire 27,000 seasonal employees for the holiday season, expanding its workforce by 400 percent to help ensure holiday packages arrive on schedule.
Macy’s doesn’t seem to have the same rosy outlook. Total holiday hiring will drop from 83,000 to 80,000 this year, although the retailer will increase staff for its online business by 20 percent. The holiday season is crucial for retailers, who can make as much as a third of their annual sales from Thanksgiving to early January, and hiring for that period is a good indicator of expected sales. Like many department store chains, Macy’s has struggled with shifting consumer habits and competition from Amazon. The company plans to close 100 stores by the end of the year.
Transportation markets
Transportation is economy driven and markets were already heading upwards before the weather-related disruptions took place. GDP was growing prior to the hurricanes and will step back in September, as Texas and Florida make up about 7 percent of trucking activity in a normal day and affect another 4 percent as important parts of freight roundtrips.
The Freight Transportation Services Index (TSI) increased 1.4 percent from the month before to a reading of 128.2, which is 0.7 percent above the previous all-time high in May. This latest reading is up 2.7 percent from July 2016.
The Freight TSI measures the month-to-month changes in for-hire freight shipments by mode of transportation in tons and ton-miles, which are combined into one index. It measures the output of the for-hire freight transportation industry with data from trucking, rail, inland waterways, pipelines and air freight.
The July increase in the Freight TSI was driven by gains in trucking, pipeline and water, while rail carloads decreased and air freight and rail intermodal were stable, according to the department.
LTL companies doing well
Looking at second quarter results this year, volume growth accelerated, as public carriers reported 4.1 percent growth year-over-year, on average, and weight per shipment rose as well. UPS Freight led the way with 8.1 percent year-over-year tonnage growth, while all but FedEx hauled more shipments versus a year ago. Hurricane network disruptions are expected to cause volume growth to decelerate, on average, in the third quarter but the recovery efforts will lead to better growth numbers for the remainder of the year.
Yields continued to rise in the second quarter up 4 percent on average. Fuel surcharges are getting back close to 2015 highs (but remain far below 2011-2014 levels). Carriers are looking to raise pricing 3 to 5 percent in this healthy freight market.
Margins have improved but are uneven amongst carriers. Some carriers like ABF Freight and YRC Regional continue to have some cost issues and aren't realizing as much operating leverage from the current improving freight market. Old Dominion is running very smoothly and has been investing the most in facility infrastructure and equipment. XPO's LTL margins are strong, too as they continue to work on network improvemnets.
Labor is the industry's biggest cost and becoming more of an issue, as drivers and dockworkers become harder to find and are requiring higher pay. Wages are going up.
Hurricane rebuilding efforts will be luring drivers back into construction (at least in affected markets) in short order with even better pay offers. The impact will be more direct on the truckload market than the LTL market, but anything that tightens truckload capacity is good for the LTL industry, as it provides more freight at better prices.
Speaking of truckload
DAT Solutions reports that in the week of September 10th- 16th, fuel prices soared driving spot market rates to maintain the highest weekly average in two years. The national average rate per mile for dry vans held at $1.93 as carriers dealt with lane imbalances and recovery efforts.
FEMA is paying as much as $4.00 per mile in some lanes drawing capacity away from normal shipping activities in a stronger freight market.
FedEx raising rates
FedEx has announced rate increases for various business lines, including FedEx Express, FedEx Ground, and FedEx Freight, which will take effect on January 1, 2018.
- FedEx Express shipping rates will head up by an average of 4.9 percent for U.S. domestic, U.S. export and U.S. import services. FedEx One Rate pricing will increase by an average of 3.5 percent
- FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 4.9 percent. FedEx SmartPost rates will also change
- FedEx Freight shipping rates will increase by an average of 4.9 percent. This rate change applies to eligible FedEx Freight shipments within the U.S. (including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands), between the contiguous U.S. and Canada, within Canada and between the contiguous U.S. and Mexico. FedEx Freight rates within Mexico will also change
- Effective January 22, 2018, a Third-Party Billing Surcharge will apply to FedEx Express and FedEx Ground shipments that are billed to a third party
- Effective January 22, 2018, applicable criteria and pricing for packages that require additional handling, are oversized, or are unauthorized, will change
- Effective January 22, 2018, FedEx SmartPost will apply dimensional weight pricing, and the Non-Machinable Surcharge will change; and FedEx Freight will implement an Over Length Surcharge of $85 per shipment and will be applied to shipments with dimensions of 8 feet or greater and less than 12 feet
UPS, has not announced 2017 rate increases…yet.
Rail intermodal rises while carload falls
U.S. railroads' total carload volume fell 1.9 percent during the week ending September 9th, but total railroad volumes ticked up 0.8 percent thanks to a 3.6 percent increase in intermodal traffic compared with the same week last year, the Association of American Railroads (AAR) reports.
For the first 36 weeks of 2017, U.S. railroads logged total combined traffic of 18,900,679 carloads and intermodal units, up 3.9 percent compared with last year.
At Wagner Logistics
As we gear up for the final quarter of the year, Wagner continues to add systems and staff in preparation for a good Q4. Operations, IT and HR have all added staffing as we balance our people capacity with new business demands.
The transportation group at Wagner has been successfully dealing with the crazy freight market and related weather disruptions. I am proud of the group’s performance and the additional business gained is a testament to that performance.
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 get your freight moved. 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.