Economic challenges continue springtime

I’m back from family vacation on the beaches of Florida and ready to dig into the latest economic and logistics news. Here is what we know.

Manufacturing is steady

The Institute for Supply Management (ISM) reports that manufacturing held its own in April after six months of shrinking. The ISM PMI index is at a 50.8 reading signifying very modest growth. Of the 18 manufacturing segments covered, 11 reported growth. 

welderThe eleven sectors growing include: wood products; printing & related support activities; paper products; plastics & rubber products; primary metals; fabricated metal products; chemical products; machinery; computer & electronic products; nonmetallic mineral products; and food, beverage; and tobacco products. 

Inventories fell 1.5 percent in April from March showing that manufacturers continue to deleverage their stocks on hand. 

Commerce Department durable goods numbers for March  

Durable goods orders increased 0.8 percent after falling a revised 3.1 percent in February, these number are on items intended to last three years or longer. An increase of 1.9 percent had been expected so, this is disappointing news. 

Capital goods are weak as businesses are being conservative in their purchasing. The oil markets are starting to tick upwards, this could help spur a firmer recovery. 

Non-defense capital goods excluding aircraft increased 0.3 percent. Commercial aircraft orders, always a volatile number, fell 5.7 percent. 

Durable goods inventories remained almost the same as stocks remain even with slow demand. 

Housing starts take a hit

buildingHousing starts dropped 8.8 percent in March to a seasonally adjusted annual rate of 1.089 million homes, compared to March 2015 starts were up 14.2 percent. 

An additional measure of housing health is sales of existing homes. Sales rose on a seasonally adjusted basis 5.1 percent and when compared to March of 2015, increased 1.5 percent. 

Postal Service woes continue

The U.S. Postal Service lost $2 billion last quarter despite a five percent increase in revenue when compared to last year. The requirement that the Postal Service prefund its retiree health benefits and an increase in work comp liability drove the loss. Without these costs USPS would have made $576 million for the quarter. 

Mail volume is up with the exception of periodicals as package volume increased 11 percent. 

Keep in mind that the temporary increase in postal rates expired on April 10th so USPS is going to have to go forward without that $519 million. 

USPS did $17.7 billion in revenue in the first quarter. 

Small business is more optimistic

The National Federation of Independent Business’ (NFIB) monthly survey showed that small businesses felt better in April. NFIB’s Index of Small Business Optimism rose 1 point to 93.6, still below the 98 average in the past. 

The NFIB members continue to be concerned about a lack of leadership in Washington in promoting economic growth. 

A small number of members, 11 percent, plan to hire additional workers in the next six months and 25 percent plan to make capital outlays. The five biggest problems are taxes, government regulations, quality of labor, poor sales and insurance costs. 

Trucking suffers

It’s no wonder that the freight recession continues with tepid demand for goods from manufacturing and retailers. The American Trucking Associations for-hire truck tonnage shrunk 4.5 percent in March on a seasonally adjusted basis. This is the largest drop off since September 2012. 

On a non-seasonally adjusted basis the freight tonnage actually increased 10.2 percent which is still weak historically for March, compared to March 2015 tonnage was up 2.2 percent. 

Big carriers are feeling the pinch as Werner Enterprises reported a 13 percent drop in first quarter earnings, Knight Transportation first quarter earnings fell 24 percent and Swift Transportation first quarter earnings sank 16 percent from last year. 

The lack of freight is contributing to overcapacity at a time when driver’s wages are increasing. Another effect is that truckers are having to use their capacity so they are turning to the spot market where pricing has been weak.

Spot market

DAT Solutions reported that the number of spot market loads jumped 9 percent during the last week in April yet, in a display of overcapacity, the national spot rates for van remained unchanged. Dry van rates nationally were $1.50 per mile and included the fuel surcharge. 

May 1st through 7th, spot rates jumped from $1.50 to $1.57 per mile for vans, we will be watching to see if this is a start of a trend upward. The first quarter is traditionally the slowest freight time of the year. 

Riding the rails

The Association of American Railroads (AAR) reports that the trend of slow traffic for both carload and intermodal is continuing. Volumes are at 2009 levels, as coal and oil shipments have tumbled. 

In response, railroads are raising prices and have practically doubled demurrage rates angering customers. Freight tariffs exploded to 27 percent after adjusting for inflation in the 11 years ending in 2013. 

The trend continues as rails become more viable due to aging infrastructure for trucks and shippers seek low cost intermodal options for long haul loads. 

At Wagner

Wagner Logistics continues its growth this year as we add a new customer with two new cities to our service map. My hat is off to our team as we tackle the implementation of new technology while growing our staff and services.  

Please give us a call if there are any opportunities at your company for distribution centers or help in transportation. Wagner works in an asset and non-asset way to tailor the right solution. 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. 

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