Dodging The Winter Blues
By on Feb 7, 2014
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While the weather is doing its winter dance, making it hard to ship and meet schedules, the economy seems to be taking a breather after the fourth quarter grew at a 3.2 percent rate.
While the weather is doing its winter dance, making it hard to ship and meet schedules, the economy seems to be taking a breather after the fourth quarter grew at a 3.2 percent rate.
The Institute for Supply Management index went from a solid 56.5 reading in December to 51.3 in January, the biggest one-month drop in the manufacturing measuring tool since 2010. Any reading over 50 indicates expansion so this isn’t a disaster, but it is cause for concern. There are plenty of potential explanations.
Is some of the downturn weather-related? How much impact has there been from the lessened demand in China due to the economic slowdown there? What is the result of the Federal Reserve’s tapering action? It’s just too soon to tell, and that is why the stock market is doing its own dance and bouncing up and down right now.
After three months of growth, I am hopeful that the lack of manufacturing orders is just a weather phenomenon.
New Contracts
YRC and UPS recently agreed on new labor contracts but union membership in the United States stayed flat in 2013 with only 11.3 percent of workers belonging. In 1983 union membership was over 20 percent. Private sector union membership is 6.7 percent and public sector membership is 35.9 percent.
While UPS is a giant in the parcel and transportation industry, YRC must compete in the largely nonunion LTL freight space. The recent agreement was needed just so YRC could secure the funding needed to stay in business.
Big Changes in Retail
The retail playing field is also changing as retailers react to the growth of online shopping. Sears, Macy’s and JC Penney are cutting locations and Target is trimming its headquarters staff and leaving open positions unfilled.
E-commerce is projected to affect brick-and-mortar stores, resulting in as much as a third less retail space in the next five to 10 years. ShopperTrak reports a 15 percent decline in foot traffic at retailers this last holiday season.
Aggressive new retailers like Lululemon and Michael Kors are growing their store location numbers and will take up some of that slack.
Look for retail malls to reinvent themselves as more retailers invest in their online fulfillment capabilities and fewer physical locations, to save on lease expenses. Want proof? There hasn’t been an indoor mall built since 2006.
Around the Industry
The freight industry wrapped up a successful year in 2013 with the American Trucking Associations reporting that its seasonally adjusted For-Hire Tonnage Index jumped 6.2 percent for the full year, its best year since 1998. The fourth quarter alone was up 9.1 percent year over year.
The Cass Truckload Linehaul Index set a new high with a 117.7 reading in December. Cass points out that shippers paid 1.5 percent more in December per truckload than they did in the same month in 2012.
Cass is a freight payment company and the index measures the mileage rates that carriers charge after removing fuel surcharges and other accessorial charges. This allows us to see true trends in pricing.
Trucking is a solid barometer of the economy as trucks carry 68.5 percent of all tonnage. As long as there is positive manufacturing production, a growing housing market, positive auto sales, and continued oil & gas growth, we should see the trucking numbers grow in 2014.
On the negative side of the ledger, Avondale Partners reports that 335 carriers went out of business in the fourth quarter, the most closures in three years.