Soft News All Around

A flat economy affects the logistics market as we roll through October and baseball’s postseason. The September economic numbers were lackluster, pointing to a continued slow recovery.

With only a 0.1 percent gain in September retail sales, we’re seeing a growing weakness in the economy heading into the holiday season. What makes that paltry 0.1 percent gain worse is that it was driven by a 1.7 percent increase in auto sales and when those sales are removed, retail sales were actually down 0.3 percent. 
I have been expecting consumer sales to pull the U.S. economy out of its doldrums, so these numbers are truly disappointing. 
In more soft economic news, manufacturing output fell 0.1 percent in September according to the Federal Reserve. This is on the heels of a 0.4 reduction in August as U.S. factories made fewer appliances, electronics and commodities like steel. 
ManufacturingThe strong dollar, consumer spending, and weak economies around the world are impacting the “making stuff” sectors. With higher inventories on hand companies are being cautious about adding more inventory, waiting until consumers start spending again. The question is, when will that happen? 
It’s been a grim year for manufacturers as overall industrial production has increased only 0.4 percent in the past year, for the weakest growth since the 2008 recession. The only real bright spot has been auto sales and corresponding production. 
With Europe struggling, Canada in recession, China slowing and Brazil in free fall, there isn’t a lot of demand for our goods overseas, especially with a strong dollar making it even harder for export sales to occur. 
The Census Bureau reported that inventories are getting a little lower but are still too high to trigger a lot of replenishment from U.S. factories. Retail inventories were up 2.9 percent in the first half of this year and manufacturing inventories rose 3 percent. Wholesale inventories are up 2.3 percent. 
SignWith this very slow growth I am not optimistic about a hike in the Fed’s interest rates this year. Companies holding inventory are hoping for a delay as well. A 1 percent hike in interest rates would increase total logistics costs by 2.3 percent. 
At least the National Retail Federation (NRF) is optimistic, forecasting a 3.3 percent growth in import containers this month when compared to October 2014 and a 3.7 percent growth improvement in retail sales overall this holiday season. 
In transportation news 
The American Trucking Associations’ (ATA) advanced seasonally adjusted For-Hire Truck Tonnage Index increased 0.7 percent in September. This balances a decrease of 0.9 percent during August. In September, the index equaled 135.1, up from 134.1 in August. 
Confirming the uptick reported by ATA, the Cass Freight Index numbers are in for September and show a 1.7 percent increase in shipments and a 2.4 percent increase in freight spend. Year-over-year shipment volume was down 1.5 percent and spending fell 6.6 percent for September. 
Load-posting service DAT reports spot market load posting fell 6 percent in the week of October 11-17. Truck capacity was steady, causing the load-to-truck ratio to fall as a result. Nationally, dry van rates fell 1 cent a mile to $1.72. This is the fourth week in a row that rates have fallen a cent per mile. 
UPS is raising rates. Effective December 28, UPS Ground rates and accessorial charges will go up 4.9 percent. UPS Air and International rates will increase an average of 5.2 percent. UPS Freight will bump up LTL rates by 4.9 percent effective October 26. 
Con-way Freight, newly acquired by XPO Logistics, has increased LTL rates 4.9 percent on the CNWY 599 tariff. Contract rates are not affected. 
On The Rails 
The Association of American Railroads (AAR) reported U.S. rail traffic for the week ending October 17 fell 2.6 percent when compared to the same week last year. Carload traffic was down 5.9 percent for the period while intermodal volume rose 1 percent when compared to last year. 
For the first 41 weeks of 2015, U.S. railroads reported cumulative volume of 11,441,306 carloads, down 4.4 percent from the same point last year; and 10,967,576 intermodal units, up 2.4 percent from last year. Total combined U.S. traffic for the first 41 weeks of 2015 was 22,408,882 carloads and intermodal units, a decrease of 1.2 percent from last year. 
All Class 1 railroads reported lower traffic. Intermodal containers and trailers continue to gain volume while carload traffic lags for the year, hurt by lower coal and petroleum loadings. 
With all of the regulatory news affecting the trucking industry, the railroads’ own problems are often overlooked. Here’s the bottom line: railroads need more time to implement Positive Train Control (PTC) to prevent a wide-scale shutdown of rail services across the country. It’s up to Congress to extend the required implementation of PTC by January 1, 2016, or face a possible shutdown of America’s railroads. 
PTC is the advanced technology designed to automatically stop or slow a train before an accident occurs. Government reports indicate that not one Class I freight railroad is currently able to comply with the PTC mandate, making the extension critical.   
Here At Wagner 
At Wagner we are implementing systems and working on improving operations by evaluating processes in several areas. Staffing our new operation in Edgerton, Kansas, for a dedicated client while writing SOPs is moving along nicely. 
Wagner’s transportation group has been performing well and has a number of exciting challenges in moving fright in some new lanes. 
Fulfillment season is in full swing as holiday season approaches, with retail display pallets being assembled and distributed. This effort will continue until all endcaps and display pallets are delivered to retailers in time for Black Friday. 
I am thankful for the great team of professionals at Wagner Logistics as we look back at all we have accomplished this year. 
If you have an upcoming RFP for a new distribution center or are just looking at adding a transportation provider, I ask that you reach out to Wagner. We would love to collaborate with you to improve service while keeping costs in check. As we say here every day, 
Bring it!
Have a great day,
John Wagner Jr.
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