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

Inside The Wage Cycle & A Shipper's Forecast

The dog days of summer are here, kids are back in school, and the long-awaited stock market correction has shaken the nerves of people looking at their 401(k) balances. Let’s look at what is happening in the world of transportation/logistics and the economy that drives it. 
The unemployment rate dropped to 5.1 percent after the U.S. added 245,000 jobs in June and July and another 173,000 in August. Companies needing warehouse workers this fall are going to be in shock when they need to add seasonal staff. They’ve been spoiled by an available pool of workers over the last several years. Even paying higher wages, it will be a challenge to find enough people to handle the retail push when many retailers, e-retailers and logistics companies need to double or triple their staffs for the holiday push. 
If it weren’t for the bust in the U.S. energy sector the unemployment numbers would be even lower. Taken in total, it’s looking like pressure is building on wages. 
In the past, the wage cycle looked like this: 
  • Everyone who is looking for work will find it.
  • Workers look for opportunities to earn more across the street.
  • Companies notice they are losing their workforce and raise pay.
  • Efforts to be frugal in pay increases have not stemmed their loss of people, and employers raise their wages again and perhaps add better benefits.
  • Larger companies may even add day care, transportation assistance, or some other enticement to attract workers.
  • When a recession occurs in eight to 10 years, the cycle completes itself with the lowest-skilled workers being laid off and entry-level wages reduced. 
I think we are in the part of the cycle where companies attempting to be frugal are boosting wages. With winter coming this may be enough to get through the holiday push, but maybe not. 
Inside The Numbers 
The Institute for Supply Management’s (ISM) manufacturing report saw its August measure of growth, the PMI, drop to a reading of 51.1, declining 1.6 percent. The 12-month moving average has been 53.9. New orders drive manufacturing, and this metric fell 4.8 percent. Production fell 2.4 percent and employment was off 1.5 percent. Before you get too depressed over these readings it’s important to know that any reading over 50 indicates expansion. So while the numbers are down in manufacturing they are still in modest positive territory. 
Big WarehouseInventories fell 1.0 percent to 48.5 and customer inventories rose by 9.0 percent to 53.0. The challenge is that rising inventories are not keeping pace with sales. 
The August ISM Nonmanufacturing Report on Business was stronger, with nonmanufacturing growth up to a reading of 59.0. This is the 67th straight month of growth in nonmanufacturing. 
The Bureau of Economic Analysis (BEA) revised the second-quarter GDP from the previously reported 2.3 percent up to 3.7 percent (annualized and adjusted for inflation), due to increased inventories and personal and government spending. Consumers spent at a rate of 3.1 percent in the second quarter, exports increased 5.2 percent, and imports fell 2.5 percent, all positively impacting the gross domestic product. 
What does it all mean? 
The economy is continuing its slow growth mode and is well poised to continue improving throughout the year. 
For transportation companies the outlook is not as robust as it was last year at this time. Higher inventories means fewer shipments until companies can sell off existing goods or products so that replenishment may begin in October and November. Consumers are making a little more money and saving at the gas pump so they are positioned to spend, driving down inventories. 
DriverThat means freight will continue to be flat until restocking occurs, which will in turn trigger manufacturing production. In a way, the flat freight market is giving carriers some breathing room to recruit drivers, boost pay and help make price increases stick as the market continues to be constrained by the lack of a deep driver pool.
Boosting driver pay by 7 to 8 percent is barely making a dent in driver retention and recruitment. What one company does is quickly matched by others so there is no silver bullet a carrier can use to get all the drivers it needs. 
Here’s my forecast, along with some advice for shippers for the rest of the year.
  • Even though freight is flat, carriers are going to increase freight rates in the 4 to 9 percent range between now and the end of 2016.
  • Remember that carriers are dealing with the continuing driver shortage and those shippers that are friendly in turning equipment and creating a productive driver environment will find it easier to attract the capacity they need.
  • Spread your loads as much as possible throughout the month and avoid having all of your loads move in the last week of the month.
  • Carriers are accepting regulatory burdens such as electronic logging, speed limiters, more stringent drug and alcohol testing for drivers and a moving target in the adoption of CSA restrictions, resulting in higher rates.
  • Carriers are looking for friendly payment terms. Want 90 days? Dream on, or expect to pay for it.
  • Train your people to treat drivers with respect when they show up at your dock. Make sure restroom facilities are available to them. It’s common courtesy and it will get the dispatchers favorable comments from the drivers who are serving your business and make them want to come back.
  • Remember that although freight is flat now, the potential exists in 2016 for the tight truck market we all experienced in 2014. Contract your freight now and lock in pricing and capacity for 2016. 
On The Rails 
On the rail side of transportation, performance metrics are improving but profitability is being slammed by the weakness in the energy sector. Oil, coal, fracking sand and other products used in the energy business are down. 
The Association of American Railroads reported that U.S. intermodal traffic was up 3.6 percent in August, year over year. Also in August, 1.1 million intermodal units were moved, which is a 38,617-unit increase over August 2014. Intermodal is leading the way while other rail business fell. 
The AAR said that, year to date, intermodal traffic has increased 2.6 percent from the same period last year. 
Here at Wagner 
At Wagner we are headed into the holiday season and expecting a strong finish to the year. We have a lot of projects on our plate, staff is being added, systems refined, and we are adapting to the growing marketplace for 3PL services.  
If you need help in moving your freight, our transportation group is top-notch. Need to stock inventory to better compete and care for your customers? We are here to help. Have an upcoming RFP for a new distribution center network or transportation bid? As we say every day at Wagner Logistics, Bring it!
Have a great day,
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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