John Wagner Looks At Some Of The Latest Transportation News And Figures From 2015 So Far

Forecasting The Second Half

Now that the first six months of the year are in the rear view, we can look at what we can expect for the logistics market in the second half of 2015. First, let’s check what’s happening in the U.S. economy. 
Despite some good indicators that the economy is growing, we seem to be in a two-steps-forward, one-step-back situation. The solid retail sales numbers we saw in May fell back in June, according to the Department of Commerce and the National Retail Federation (NRF). 
Retail sales jumped 1.2 percent in May according to the Commerce Department, yet they say June’s numbers slid 0.3 percent. Year over year, June’s retail sales were up 1.4 percent. 
The NRF’s take on last month was that sales fell 0.2 percent on a seasonal adjusted basis from May. NRF sales numbers don’t reflect auto sales, restaurants or gas stations. 
One theory holds that consumers are indeed spending but they are taking advantage of marked-down prices, and these discounts are showing up as lower sales. Others suggest consumers are hearing the bad news about Greece, Iran and China and becoming conservative in their spending. Another is that since Memorial Day was in early May, that knocked some of the wind out of June spending. Perhaps it is a bit of all three? 
Whatever the consumer’s frame of mind, the losers were sellers of automobiles, clothing, building supplies and furniture. Even with this broad decline, analysts are saying that given the drop in joblessness, the continued low gas prices and the improving access to credit, consumer spending should increase going forward this year.
On the manufacturing side of the ledger
The Federal Reserve reported factory output was up a meager 0.1 percent in June after being flat in May. Output for the first half of the year is up 3.2 percent when compared to the same period in 2014. 
A bit of a brighter report comes from the Institute for Supply Management (ISM) issuing its June report on manufacturing, saying its PMI rose to 53.5 from 52.8 in May. Of the 18 manufacturing industries, 11 reported June growth. Some of the winners are wood products, furniture and nonmetallic mineral products. Losers included oil and coal, as these industries contracted. 
The new orders part of the PMI was positive, gaining 0.2 percent in June to a reading of 56.0. Putting this into context, the PMI averaged 56.9 in the last six months of 2014. 
Other positive news is that manufacturers are hiring and their raw materials are costing them less. The price index was flat at a reading of 49.5.
Inventory issues 
InventoryThe Census Bureau reported on May inventories, saying that total inventories throughout the supply chain – including manufacturing, wholesale, and retail – relative to sales were unchanged from April to May. This lack of a drop will keep the freight industry softer than what we have seen recently. 
Census also reported some better-than-expected news, saying housing starts increased 9.8 percent in June after having fallen 10.2 percent in May. Most all of the positive growth came when multifamily structures surged 29.4 percent. 
The freight market is not surging as we expected it to at the beginning of the year. Higher inventory levels in the retail, wholesale and manufacturing industries, coupled with restrained consumer spending and a dash of softer factory production so far this year, are responsible for the current underperforming situation. 
The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index fell 0.5 percent in June from May. In year-over-year comparison, the index grew 1.8 percent for the month. The summer peak traditionally kicks in during the middle of July and so far it doesn’t appear to be happening. 
The DAT spot market for dry vans nationally fell to $1.87 per mile in the week of July 5 through 11, falling 2 cents from the week before.
2015 second half crystal ball time 
Unless there is a tremendous improvement in consumer spending, the current modest freight market will continue for the foreseeable future. 
  • Truckload carriers will keep spending more for drivers, to slow the churn. This tactic is working as driver turnover has slowed somewhat.
  • Regulatory impact from electronic logging, proposed higher insurance minimums, and driver testing, coupled with higher costs for fleet replacement, will keep pressing rates upward.
  • Intermodal pricing will continue to creep up as railroads keep pace with truckload pricing. Truckload rates are up about 5 percent from where they were last year at this time and railroaders don’t want to leave any money on the table, particularly since other rail business is lagging.
  • The lack of any meaningful action on the part of the president and Congress to provide a long-term solution to our nation’s infrastructure replacement and upkeep will keep congestion an ugly fact of life for motor carriers and consumers.
  • Shippers will ask themselves if they are good customers. While truck capacity isn’t as tight as forecasted, it still isn’t abundant. Smart shippers will work with their carriers to maximize capacity and evaluate shipping and receiving times, to squeeze more time out of the regulated hours a driver is allowed to drive. When the economy sustains a 3-plus percent GDP it will be these shippers who will get the carrier capacity they need.
  • There will continue to be consolidation in the logistics industry as larger companies make strategic acquisitions to fill geographic holes in their service areas and/or pick up new service segments. Larger motor carriers are always looking to add to their capacity if it can be done at the right price while retaining drivers and customer. 

Here at Wagner 

At Wagner we continue to roll on through the year with good performance in all of our service categories. We are growing with our current customers while adding new ones. A significant new operation is in development and it is always exciting to work with a new client to bring a new facility to life. 

We continue to review systems and make investments in the future as we seek to remain a top-tier provider of logistics services.  
Are you considering adding to your distribution network, issuing a transportation RFP, or just looking for a better way to bring your products to market? As we say every day at Wagner, Bring it!
John Wagner Jr.
About Wagner Logistics
Wagner Logistics is a leading supply chain management provider offering distribution center, fulfillment and transportation services across the United States. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dumas AR, Dallas TX, and Clinton, IA, Kansas City MO and KS. Wagner combines high-tech tools with high-touch product pampering to ensure that inventory is where it needs to be, when it’s needed, in the condition customers expect. From product displays to complex fulfillment to vertical supply chains for fragile products, we want to tackle your challenges! 
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