Springtime Brings Flowers and Hope
There is a lot of economic data coming in providing a hint of what’s coming in the second quarter that will impact the transportation and logistics industry. Let’s take a look at the highlights.
The Fed is backing off of the idea of raising short term interest rates four times in 2016. They are forced to look at the reality that consumers aren’t spending and core inflation remains low. Look for two very small increases with the first possible one in June.
The retail sales numbers are still looking gloomy so far this year. Both the United States Department of Commerce (DOC) and National Retail Federation (NRF) say there is little or negative growth.
DOC said February retail sales were down 0.1 percent compared to January (following a 0.4 percent January decline) and up 3.7 percent annually at $447.3 billion. Total retail sales from December 2015 through February 2016 were up 2.9 percent.
The NRF reported that February retail sales (excluding autos, gas stations, and restaurants) were up 0.1 percent over January (matching January’s’ increase over December) and 3.8 percent on a seasonally-adjusted basis compared to February 2015.
Consumers remain wary of spending but as spring approaches they should find their collective wallets. The NRF believes retail sales will increase 3.1 percent annually this year. Their rationale is based on:
- Economic growth between 1.9 to 2.4 percent this year
- An estimated 190,000 new jobs per month on average
- Online sales will continue to grow at a faster rate than brick and mortar sales
Remember that we are talking about 70 percent of the U.S. economy, it’s important that consumers spend and drive down the inventories that are holding back the transportation markets. I remain optimistic and hopeful that people will spend this month and next helping to move the economy forward.
Inventories remain high
The Census Bureau says the total business inventory-to-sales ratio, which includes retailers, wholesalers and manufacturers, increased again in January to the highest level since the depths of the Great Recession. Excluding the recession period, this was the highest level since October 2001. The inventory-to-sales ratio lags a month due to the way they report.
Factory output improves
The Institute for Supply Management (ISM) says its measure of manufacturing activity increased last month to 49.5 from 48.2 in January. Expansion is when the index is over 50.
Showing demand, the new-orders index held steady at 51.5 in February, reflecting modest growth. The report said 12 of the 18 manufacturing industries surveyed, including transportation equipment and chemicals, saw increases in new orders.
The strong U.S. dollar is making exports expensive for foreign customers, while making imports less expensive for U.S. consumers. The manufacturing sector drives 12 percent of GDP.
Services sector remains positive
ISM reported that their measure of non-manufacturing activity remained in positive territory at a reading of 53.4 in February. This is the 73rd month in a row services have been positive as business activity/production rose 3.0 percent.
USPS continues to struggle
As first class mail and revenue volume falls, the Postal Service Retiree Health Benefits Fund payment obligations fall short. Competition continues to pound the USPS inflexible business model. They are looking at another serious loss this year. The postal service recorded a net loss of $5.1 billion in 2015, compared with a loss of $5.5 billion in 2014.
Their Shipping and Package Group remains the only bright spot as this “old economy” business model struggles with its identity and place in an e-commerce driven world. Pension and pricing issues will remain as Congress tries to sort out the Postal Service public service role as compared to the cost to perform.
Trucking welcomes springtime
LTL companies are enjoying more stable volume than their brethren in the truckload sector; although, high inventories continue to provide headwinds this year. Antidotal evidence is that carriers are holding on to their rate base and getting about 3 percent on contract renewals. These carriers need to keep pressing for more money as their wages/benefits rise along with equipment costs. The government regulators aren’t helping either with the constant press of new rules. LTL companies remain disciplined in their pricing which is unlike previous freight downturns.
Truckload companies continue to experience a freight recession. DAT Solutions reported the national mileage rate for dry vans fell a penny to $1.55 a mile in the week ending March 12th. Load posting fell 5 percent and truck postings grew 1 percent.
DAT reports that rates out of Chicago fell while rates from Los Angeles rose. The national average of diesel prices rose 8 cents to $2.10 a gallon during this time, leading to a 1-cent gain in fuel surcharges.
Cass Truckload Linehaul Index creeped up only 0.5 year-over-year in February, after rising of 0.4 percent in January. Last year the index showed annualized increases of 6.6 and 7.9 in the same period. Cass predicts that truckload rates will either fall 1 percent this year or rise 2 percent at the most.
Providing some hope, the American Trucking Associations’ For-Hire Truck Tonnage Index rose by 7.2 percent in February, hitting an all-time high reading of 144.
Last February the index was up 8.6 percent compared to 2015 tonnage is up 4.8 percent After a weak January in the freight market, is this a catch up month or the start of a larger trend? Stay tuned.
Life at the railroad
The downward pressure on trucking rates is affecting intermodal as Cass reports a decline in pricing for February for the 14th straight month. The Cass Intermodal Pricing Index, fell 3.8 percent from January.
The Association of American Railroads (AAR) said that U.S. intermodal traffic increased 5.6 percent in the first ten weeks of 2016 in a year-over-year comparison putting a more positive spin on the situation. Lower diesel fuel has placed the intermodal carriers in intense competition with the truckload carriers. Watch for intermodal spot rates to get very competitive as they try to recapture volume.
The AAR said that quarter-to-date, total Class 1 railroad volume was down 3.7 percent year-over-year.
Wagner experiences growth
Wagner Logistics is off to a fast start as we add customers, integrate new systems, and refine processes.
The IT group is engaged in rolling out a new Warehouse Management System, training associates, and recently completed the implementation of a new accounting system. All while caring for the EDI needs of our many customers. Hats off to the IT group!
If you have a distribution center requirement or need transportation capacity in a problem lane, I hope you will reach out to the team at Wagner. 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 3,000,000 sq. ft. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dallas, TX, Omaha, NE, Clinton, IA, 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.