The new normal, it's uncomfortable
The economy is off and running, labor is scarce as drivers and warehouse workers become hard to find. One must get used to being uncomfortable as resources tighten in this hot economy. By John Wagner Jr of Wagner Logistics.
The Labor Department said wages and salaries are rising at the fastest clip since 2008, notching an annual 2.8 % gain. The overall employment-cost index, including the cost of employer-paid taxes and benefits, also rose 2.8 % from a year earlier. Benefits costs jumped 2.9 %, the most since 2011.
Inflation is running at 2 %, people are seeing a little more money in their pocket and optimistic as the Conference Board reports consumer confidence rose to a 127.4 reading in July, up from 127.1 in June surprising economists who has expected it to fall.
At Wagner Logistics our HR team is working hard to fill positions at new operations as we add new business. Fortunately for Wagner, our associate retention is very good.
Let’s look at some economic numbers and what’s happening in the logistics sphere.
Consumers kept spending in June
Consumers found their collective wallets as spending rose by a solid 0.4 % in June, after a rise of 0.5 % in May. The Commerce Department also reported incomes rose a solid 0.4 % in June, matching the May increase.
Retail sales reached $506.8 billion in June, a 6.6 % jump from June 2017. Total sales for the second quarter rose 5.9 % from the same period a year ago.
Inflation over the past four months has been at 2 % or slightly above which is the target the Federal Reserve seeks to achieve. On Wednesday this week, the Fed said the economy was strong and passed on raising interest rates.
Consumer spending, which accounts for 70 % of economic activity, grew at an annual rate of 4 % in the April-June quarter after a disappointing gain of just 0.5 % in the first quarter.
The economy grew at a 4.1 % annual rate in the April-June quarter, the fastest pace in nearly four years, and nearly double the 2.2 % gain seen in the first quarter. Much of the rise came from a rebound in consumer spending as consumers began to spend the extra income they received from the $1.5 trillion tax cut Trump pushed through Congress in December.
Manufacturing still growing, but more slowly
The Institute for Supply Management (ISM) reported its manufacturing index at 60.2 % in June, up 1.5 %age points from May, as 17 out of 18 manufacturing industries reported growth. An index value greater than 50 % shows expansion. The institute said it was the 110th consecutive month of growth for the overall economy.
The Federal Reserve Industrial Production Index moved up 0.6 % in June to 107.7. The index rose 3.8 % from June 2017 to June 2018. Manufacturing output increased at an annual rate of 1.9 % in the second quarter, about the same pace as in the first quarter.
July numbers show growth is moderating as the ISM index fell 2.1 %age points to 58.1 for June’s 60.2 reading, still in growth territory.
Amazon is riding the tailwinds
Amazon reported their second quarter earnings and WOW. Net sales grew 39 %, as did revenue from the commissions paid by marketplace sellers. Goods sold by marketplace sellers accounted for 53 % of units sold through Amazon during the quarter.
Amazon.com Inc. booked $2.53 billion in net income in the quarter, up from $197 million in profit a year earlier. The profit came from a 39 % increase in net sales, including 49 % sales growth in AWS (Amazon’s computing business), 57 % growth in subscription services revenue (Prime membership fees and content fees) and 39 % growth in seller services revenue, which includes commissions paid on marketplace sales and Fulfillment By Amazon fees.
Amazon saw the least growth in revenue in selling physical goods online to consumers, at 14.4 %. Revenue from Amazon’s online stores business in Q2 was $27.17 billion versus $23.75 billion a year earlier. Amazon’s online store revenue accounted for 51.4 % of net sales versus 62.6 % in Q2 2017.
Industrial real estate continues its hot streak
While transportation gets the headlines for escalating costs, the industrial real estate market continues to surge with new construction and increases in rent. Anyone who has looked for a new distribution center may be forgiven for the sticker shock.
Depending on the market, rents are up between 3 and 14 % in the U.S. driven by an economic cycle moved by consumer spending and the need for companies to provide e-commerce and omnichannel fulfillment.
This dynamic has led to record high lease rates and low vacancy across the country in primary and secondary distribution markets.
What’s up with trucking?
The carrier with the drivers wins in this market, it’s a fight across the motor carrier industry as they compete for insurable driving talent.
As the crunch for drivers continues, carriers are offering increasingly higher compensation packages. Some are more aggressive than others but regardless, pay is accelerating amounting to an additional $3,000 to $6,000 more per year in addition to various bonus structures. The raises haven’t yet peaked as carriers struggle with retention and attraction.
The driver war continues in line with rising freight rates. As of now, shippers should expect to see their pricing increase of 6.6 % in truckload and 4.1 % in LTL in 2019.
The American Trucking Associations’ (ATA) advanced seasonally adjusted for-hire Truck Tonnage Index rose 7.8 % year-over-year in June and was up 8 % for the first half of the year when compared to the same period in 2017. Through the first half of 2018, tonnage has increased 7.9 %, more than doubling the 3.8 % gain seen in the first of 2017.
The Cass Freight Index Report found that the current level of volume and pricing growth is signaling that the U.S. economy is growing, but that level of growth may have reached its short-term expansion limit. Tracking monthly levels of shipment activity through two indexes, the volume of shipments and expenditures for freight shipments, the expenditures index in June grew nearly 16 % from a year ago.
So where are we now? DAT Solutions reports that in the week of July 22ndthrough 28th pricing followed the usual seasonal decline, but just a little off the highs we saw in June. Both the national average van rate and reefer rate dropped 3¢ per mile for the month to-date, while the average flatbed rate dipped 1¢. National load-to-truck ratios declined slightly for vans and flatbeds, while the reefer ratio was stable compared to the previous week.
The national average dry van rate was $2.30 per mile and the van load-to-truck ratio moved down to 6.9 loads per truck.
What about autonomous trucks?
If shippers are waiting for driverless trucks to solve the problem they will be waiting several years. What is more likely in the short run will be platooning trucks where a driver is present and another truck without a driver follows.
Even this technology is a way off while laws and regulations wait to catch up. The Competitive Enterprise Institute (CEI) said these technologies could provide significant cost savings on freight shipments and increase highway safety.
States will have to change their laws to accept this technology. Only 16 states have moved forward and nine of these came on board earlier this year. They include Alabama, Indiana, Kentucky, Louisiana, Mississippi, Nevada, Oregon, Utah, and Wisconsin.
Automated platooning technology allows trucks to travel closer together, reducing aerodynamic drag, while still allowing them to move safely at highway speeds. This reduces drag, fuel consumption, and tailpipe emissions, enhancing highway safety through automatic emergency braking capabilities.
Lawmakers struggle to understand the technology as do their constituents.
Intermodal having a good year
The Intermodal Association of North America’s (IANA) quarterly, Intermodal Market Trends & Statistics Report said that second quarter intermodal volume growth picked up where the first quarter left off: heading in the right direction and going strong.
Total second quarter intermodal volume movements, at 4,741,054, were up 6.2 % annually. This also marks a 4 % improvement over the first quarter.
While the second quarter marks the best-ever quarter from a volume perspective, the 6.2 % annual rate of growth was below the first quarter’s 7.2 % annual spread.
Association of American Railroads (AAR) reports July growth
In July, U.S. railroads moved 2,156,435 carloads and intermodal units, marking a 5.2 % increase over the same month in 2017. Intermodal volume grew 6.9 %, while carload volume ticked up 3.5 %.
In addition, 15 of the 20 carload commodities that AAR tracks each month logged gains compared with July 2017. Those included grain, up 14.7 %; petroleum and petroleum products, up 27 %; and chemicals, up 4.6 %.
At Wagner Logistics
As I mentioned earlier, Wagner is on a hiring spree recruiting and on-boarding new associates at new distribution centers in Plainfield, Indiana and Monroe, Louisiana.
My sincere thanks go out to the Human Resources team and leadership at Wagner for being selective as we bring on over 100 people to fill positions of all kinds to be trained in the Wagner Way.
What can Wagner Logistics do for you? If you are considering new distribution centers or a freight RFP I hope you will give Wagner an opportunity to serve you. We have an extensive history of 72 years of service to our customers and would love the opportunity to collaborate with you.
As we say every day, Bring it!
Have a great day,
John Wagner Jr.
About Wagner Logistics
Wagner Logistics was founded in 1946 on the principle that every customer is a big deal and that continues to pervade our mentality, producing a superior customer experience. The company began in trucking and remains dynamic offering top-notch transportation, dedicated warehousing and robust fulfillment services. We strive to produce innovative solutions, in addition to our superior onboarding process which makes transitions seamless, and have been honored 17 years in a row by Inbound Logistics as a Top 100 3PL. Our customers drive our entry into new geographic markets, technological advances and everchanging distribution challenges. Where do you want to be? Wagner says, Bring It!