Economy Heats Up Transport Demand

The economy continues to heat up while the temperatures cool down this fall season. Along with economic growth there is a greater demand on our nation’s transportation capacity.

The Institute for Supply Management’s (ISM) non-manufacturing index grew to a 59.6 reading in August from 58.7 in July, showing that the service sector is on a hot streak. I have previously written about the growth in manufacturing. Now with the service sector (the broadest measure of the economy) showing sustained growth, the nation’s economy continues to head in the right direction.

The Federal Reserve recognized this growth in its Sept. 3 Beige Book statement. Cleveland, Dallas and Atlanta districts reported growth in transportation with strong freight volumes. A shortage of qualified truck drivers was also noted as a constraint holding back carriers from adding capacity.

Retail sales climbed 0.6 percent in August, the fastest pace in four months, and July sales were revised up to a 0.3 percent increase. Car dealerEverything from home improvement stores to auto dealers led the way as there were winners in 11 of 13 segments. Consumer spending amounts to two-thirds of the U.S. economy and is likely an indicator of what is coming this holiday season.

USPS reduced some rates Sept. 7, rolling back pricing on priority mail in some zones. The post office is going after more e-commerce business; the new rates target three- to 40-pound packages moving less than a thousand miles. They are apparently making this move in advance of the dimensional pricing plans put in place by UPS and FedEx that take effect in January.

Freight Market Still Hot 

August freight volume continued to track upward, according to the Cass Freight Shipment Index. This measure showed a 4.9 percent increase year over year in August and was up 2.3 percent from July. There is no indication of the freight market slowing down anytime soon. Truckload, reefer and flatbed carriers are all outperforming usual seasonal business.

Publicly held LTL companies mostly increased their guidance on freight volumes in the third quarter. Watch for LTL freight rate increases to be announced later this year while their business is strong.

Rail News 

Freight TrainWhile the railroads work on improving service, rail volume continues to grow. Intermodal rail moved 4.5 percent more traffic the week ending Sept. 6 than the same week in 2013. The Association of American Railroads reported that 239,142 intermodal trailers and containers were moved in that one-week period.

Carload traffic was up as well, increasing 2.7 percent with more than 286,000 carloads moved. Oil train volume increased 31.1 percent compared against the same week last year.

 3PL Merger Mania

Merger and acquisition activity continues in the 3PL world, with XPO Logistics continuing to buy up supply chain capability. After purchasing Pacer earlier this year to bolster its intermodal capability, XPO stepped up to purchase New Breed, a warehouse-based 3PL, for $615 million, which is about eight times EBITDA.

French 3PL Norbert Dentressangle S.A. announced its pending acquisition of Jacobson Companies for $750 million, a move designed to better penetrate the U.S. market.


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