Independence Day Economic Fireworks

Article by John Wagner Jr from Wagner Logistics published on July 3rd

The Independence Day holiday is upon us; let me start this post by thanking all current and former members of the United States Armed Forces for everything you do. Especially those deployed overseas and in harm’s way. You and your families are making huge sacrifices while we enjoy the safety of our comfortable homes. Most of us don’t even pause to consider the harsh conditions these brave men and women face in a war zone.

On a personal note, I am grateful to have my son returning home to go back to school and re-start his life. After three years in Germany and one in Afghanistan, I am eager to hear the stories of his adventures in the 515th Transportation Company.

The economy is once again off on its own adventure, this time showing some amazing signs of moving forward, despite the dreaded sequester. Many economists were confident that Congress cutting $85 billion in spending would wreck the economy. Amazingly though, while it’s not happening fast, there are signs the economy is growing.  It makes one wonder what would happen if the President and Congress could reach a grand bargain?

According to a report from the Institute for Supply Management, the Purchasing Managers Index for the U.S. rose to 50.9 in June from 49 in May. The ISM report indicates strength, with faster growth in new orders, production and inventories after contracting in May. 

Longer term, there is concern about manufacturers’ markets in recession-prone Europe and China slowing growth.  Companies’ overseas markets have not recovered to the extent of those here in the United States and the immediate forecast is not hopeful.

Positive News From Commerce

The Commerce Department reports purchases of new homes increased 2.1 percent in May and that year-over-year prices are up 10.3 percent. The S&P/Case-Shiller index of property values jumped 12.1 percent in April year over year. Consumers are rushing in now to take advantage of historically low mortgage rates before the Fed backs off support in 2014, causing rates to climb.

Commerce also reported that durable goods (products expected to last three years) sales were up 3.6 percent in May, more than forecast, providing further evidence that manufacturing is back. Excluding the volatile transportation sector (Boeing booked sales for 232 new planes in May after April orders for 51), orders were up 0.7 percent.

Autos and parts took a breather, declining 1.2 percent after being up 2.4 percent in April.

Non-defense capital goods orders, not counting aircraft but including electronics, computers, and other equipment, built on a gain of 1.2 percent in April and increased 1.1 percent in May.

Also from the Commerce Department, consumer spending rose 0.3 percent in May, a reverse flip from the 0.3 percent decline in April. Income rose 0.5 percent in May but after-tax income is up only 1.1 percent over 2012, including inflation.

It is important to remember consumer spending drives 70 percent of the economy; we need this activity to drive manufacturing and transportation.

 The Council of Supply Chain Management Professionals recently released its 24th annual “State of Logistics” report and it is full of interesting facts and statistics. Logistics costs for businesses in the United States increased 3.4 percent over 2011 to $1.33 trillion in 2012.  Total U.S. logistics costs held steady at 8.5 percent of GDP.

Truck transportation costs were up 2.9 percent, but with the Hours of Service regulations kicking in last Monday and increasing demand forecast against available capacity, we should expect pricing to go up.

The report indicates railroad transportation costs rose 4.9 percent with trucks in the intermodal market maintaining downward pressure on rates. Intermodal volume hit a historical high in 2012 while carload traffic dropped 3.1 percent.

The U.S. 3PL market grew by 2.7 times U.S. GDP in 2012 ($141.8 billion) with total 3PL revenue growth of 6 percent from 2011 ($133.8 billion).

Many believe the U.S. is living in a “new normal” of slow job growth, high unemployment (use of part-time workers to avoid higher health costs), slow economic growth (GDP growth of 2.5 percent to 4.0 percent), increased productivity from equipment/technology investment and less reliable or predictable freight service (volumes rise but capacity is constrained).

I could quibble over some of this, but for the most part it is on the money. I’m not sure that the use of part-time workers to avoid paying benefits is a solid strategy given the demand for outstanding quality and service.

The Power of the Consumer

The Grocery Manufacturers Association released a report called “Growth Strategies: Unlocking the Power of the Consumer” which says that direct-to-consumer interaction is a great way to connect with customers and test new products faster and more effectively.  In 2013, more than 40 percent of consumer packaged goods manufacturers expect to sell direct to consumers, up from 24 percent in 2012.

This trend points out the need for continued emphasis on technology to support an omni-channel approach as retail replenishment is handled alongside e-commerce fulfillment. Inventory harmonization between the channels is key.

In truck transportation, the American Trucking Associations reported that truck tonnage leapt 6.7 percent in May in its seasonally adjusted index when compared to May 2012. This is a number we’ve not experienced since December 2011. When compared month over month, truck tonnage increased 2.3 percent from April. Tonnage is up 4.5 percent for the first five months of 2013.

Ten-Year Forecast

ATA also released its U.S. Freight Transportation Forecast to 2024, predicting overall freight volume will grow by 63.6 percent to $1.3 trillion annually in 2024. Trucking will experience its share of that revenue grow to 81 percent from 80.7 percent in 2012. 

On the rail side of transportation, the Association of American Railroads reports that in the week ending June 15th, intermodal volume increased by 1.7 percent compared to the same week in 2012. Rail carload traffic was up 0.5 percent for the week lead by petroleum and petroleum products, which rose 35.6 percent. Grain shipments fell 12.1 percent.

In the first 24 weeks of the year, 5.77 million intermodal containers and trailers were handled for a 3.9 percent increase over 2012. Carload traffic is the laggard, falling 1.6 percent to 6.65 units.

On The Acquisition Front

Coregistics announced the acquisition of Cano Packaging Corporation in May. Based in Chicago, Cano provides contract-packaging services for food and confectionary manufacturers.

Last month Neovia Logistics Services, LLC (formerly Caterpillar Logistics) announced the pending acquisition of the contract logistics division of MIQ Logistics, LLC.

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