John Wagner Looks At Some Of The Latest Transportation News And Figures
Consumer Spending Bodes Well for the Holiday
Summer is officially over and the fall season has arrived. Let’s take a look at what’s happening in the U.S. economy and the transportation/logistics markets.
According to the United States Department of Commerce and the National Retail Federation (NRF), consumers came out in force in August and they had cash to spend.
The Department of Commerce said that August retail sales were $447.7 billion, which was 0.2 percent higher than July sales and up 2.2 percent year over year from August 2014. The NRF reported retail sales for the month (excluding autos, gas stations and restaurants) were up a seasonally adjusted 0.2 percent from July and saw a 2.6 percent improvement over the same period last year.
After sales surged 0.7 percent in July it was good to see the 0.2 percent increase last month, maintaining the trend. The Department of Commerce reported a jump in auto sales of 0.7 percent, which helped the overall number as, without this, sales were up 0.1 percent.
Going into the final stretch of the year the overall trend is looking good, although inventory-to-sales ratios are higher than retailers would like to see. With consumers getting relief at the gas pumps and some small bumps in pay, retail holiday sales should do just fine.
By now you know that the Federal Reserve left the federal funds rate alone. That is the rate banks charge each other for overnight loans, and it is set now near zero percent. My humble opinion is that the turmoil in the international economy is keeping a foot on the brake and as soon as the Fed is more comfortable with inflation and sees some amount of stability, later this year or early next, a small increase will be coming and more will trickle in over the next couple of years as the economy continues to improve.
August wasn’t a good month for existing home sales; the National Association of Realtors (NAR) reported that sales slid 4.8 percent from July. Low inventory and rising prices are catching the blame. To be fair, July sales were the highest in more than eight years so perhaps this is a just a short break in the action. New home construction fell 3 percent.
The median home price is up 4.7 percent over the past year, which is more than double the increase in hourly pay so some believe prices are now creeping out of the reach of many buyers. The NAR expects flat sales for the reminder of the year.
The good news was that first-time homebuyers made up 32 percent of sales in August and short sales and foreclosures fell to the lowest level in seven years.
Manufacturing remains lackluster as the Fed said total output from mines, factories and utilities fell 0.4 percent after a 0.9 percent improvement in July. Separately in August, manufacturing output was down 0.5 percent, mining down 0.6 percent, and utilities were up 0.6 percent. The declining energy sector continues to be a drag on the economy.
What does this mean for transportation?
In trucking, truckload demand has been flat over the last month, weaker than seasonality. Truckload carriers are still reporting profits as contract rates are heading higher due to shippers securing capacity for 2016.
Spot rates are 16 percent lower than contract rates, a spread reflecting the current softness according to DAT Solutions reporting. If the economy falls in 2016 and the capacity crunch does not occur as anticipated, expect contract rates going forward to be pressured downward. Please keep in mind the larger truckload carriers have little exposure to the spot market but, nevertheless, over the long term, spot rates affect the contract rates.
The American Trucking Associations (ATA) said their truck tonnage index trended below seasonality, falling 0.5 percent from July to August. Year over year the index is still up 2.6 percent. LTL carriers are seeing less tonnage and it’s attributable to the elevated inventory levels across the supply chain.
Also in trucking headlines:
- DAT spot rates were mostly flat this week. The overall equipment rate increased by one penny to $1.95 per mile. Flatbed, reefer and van rates all stayed flat at $1.93 per mile, $2.10 per mile, and $1.77 per mile, respectively.
- FedEx Corp. (FDX) reported a profit of $692 million in the three-month period ending Aug. 31, compared to $653 million a year earlier. FedEx is increasing shipping rates an average of 4.9 percent for its FedEx Express, FedEx Ground and FedEx Freight subsidiaries effective Jan. 4.
- Celadon Trucking announced a driver pay initiative called WageLock, where company drivers who meet the requirements can earn up to $1,000 a week, regardless of how many miles they drive. The program will go into effect Nov. 1 for qualified drivers.
- The Federal Motor Carrier Safety Administration has delayed the final Electronic On-Board Recorders (EOBR)/Electronic Logging Devices (ELD) rules by a month; they will be released Oct. 30.
- The DOT is eliminating MC numbers and implementing the Unified Registration System. Docket numbers, including MC, MX and FF numbers, will be discontinued Oct. 23. After the launch of the URS online portal, companies that register with FMCSA will be given a USDOT number, but no docket number. Let’s hope the portal has a better launch than healthcare.gov had and confusion is minimal.
- The National Highway Traffic Safety Administration (NHTSA) is expected to release a proposed rule later this year on devices that would limit truck speeds.
On The Rails
The Association of American Railroads (AAR) reported U.S. rail traffic for the week ending Sept. 19 was down 2.5 percent from the same week year over year. Carloads were down 5.5 percent and intermodal was up 0.6 percent when compared to 2014.
Winners in volume (when compared to 2014) were grain, up 19 percent; miscellaneous carloads, up 7.7 percent; and motor vehicles and parts, up 5.8 percent. The losers were metallic ores and metals, down 22.9 percent; petroleum and petroleum products, down 13.1 percent; and coal, down 9.1 percent.
Class 1 performance metrics continue to show signs of stress on rail networks, with velocity improving and terminal dwell time increasing. Overall asset efficiency is worse, meaning that it takes more cars to move a similar amount of freight.
Railroads are focused on getting service issues resolved and continue to invest heavily in infrastructure as they know an improving economy will place more demand on the rails. Knowing that regulatory issues and driver attraction are causing trucking challenges, railroads want to position themselves to take full advantage of their intermodal networks and value proposition.
However, with lower diesel fuel prices the short-haul lanes that railroads were hoping to convert will stay with the trucking industry. The only real path forward for the railroad industry is to improve execution while the regulatory burdens placed on truckers play out and make truck capacity issues worse.
Increased train velocity, shorter yard dwell times and improved asset utilization will be the key to driving a larger share of freight to intermodal. Coupled with a cooperative vision to partner with truckers rather than compete against them would mean a winning strategy.
Here at Wagner
At Wagner we are in full seasonal mode with many projects in overdrive.
My sympathies go out to our IT group as we add the implementation of a new accounting system to their list of projects. While a new accounting system isn’t very sexy, it will drive a number of improvements such as better budgeting tools, faster carrier settlements and faster ACH payments to vendors.
Our transportation group continues to move loads on time and on budget for our customers, and we have some opportunities with a few customers to add assets on dedicated lanes. One of the services we offer at Wagner is dedicated trucking, the root of our founding almost 70 years ago, and we are quite accomplished at it.
If you have an upcoming transportation RFP or just need to move some spot loads, please give us a call. We would love to help. If you are considering a new distribution center or just want to talk through a logistics challenge, give us a call. As we say every day, Bring It!
Have a great day,
John Wagner Jr.