Loving our customers in a growing economy
As we close in on Valentine’s Day, let me start by saying how much I appreciate our associates and customers. It takes a great team to satisfy the varied requirements and performance that metrics our customers expect from us. I am indeed grateful for the team at Wagner Logistics. Customers are the lifeblood of any business and at Wagner we have some of the best.
Looking at the U.S. economy and its relationship with the world of logistics, let’s get to the numbers. It’s been a slow news week for the economy.
Manufacturing growth
The Institute for Supply Management said its purchasing manager’s index rose to 56.0 in January from 54.5 in December. This is the highest level for this factory gauge since November 2014. A reading over 50 indicates expansion in the sector; below 50 suggests contraction.
Businesses seem to be buoyed by the prospect of a business friendly administration (less taxes and regulations) coupled with stabilized oil and dollar.
Twelve of the eighteen industries reported growth in January. The ISM new-orders index crept up to a 60.4 reading in January from 60.3 the prior month. The production index was 61.4 in January, up from 59.4 in December. Both have gained for five straight months.
The employment index increased to 56.1 compared with 52.8 a month earlier and is now up for four consecutive months.
Raw material prices are also up for 11 straight months, a development that suggests rising inflation pressures.
We will wait to see if this post-election optimism continues as it is too early in the Trump administration to gauge what will really happen with tax reform, infrastructure rebuilding and regulatory reform.
Gross Domestic Product tumbles at year end
The gross domestic product (GDP) increased at an annual rate of 1.9 percent in October through December, down from the 3.5 percent pace in the third quarter of 2016. A drop in fourth quarter exports shaved off 1.7 percentage points from the GDP.
The final GDP number came in at an anemic 1.6 percent, down from 2.6 percent in 2016 and was the weakest annual performance for the U.S. economy since 2011.
New Home Sales Fell in December
Sales of new single-family homes fell 10.4 percent in the final month of 2016 to a seasonally adjusted annual rate of 536,000, according to the Commerce Department. That marks the biggest one-month drop since March 2015. Despite the drop, sales for all of 2016 rose 12.2 from 2015 to 563,000 units, the highest annual rate since 2007 and the fifth straight year of growth.
Regionally, new home sales increased 48.4 percent in the Northeast. Sales fell 1.3 percent in the West, 12.6 percent in the South and 41 percent in the Midwest.
Economic Outlook is Positive
The Conference Board’s Leading Economic Index for the U.S. increased 0.5 percent in December after small increases in the previous two months. The consensus is that the economy will continue growing at a moderate pace, perhaps even accelerating slightly in the first half of this year.
With manufacturing gaining momentum and the housing market being strong, all we need is for consumers to continue spending to be set up for a strong year in the transportation and logistics industries.
Disruptive Technology is Coming
- Drones were once laughed at, those that fly and run on the ground are making headway in it becoming a reality. Advances in payload to tare weight are being made and internal energy management are progressing.
- Self-Driving/Autonomous Trucks are progressing as well. Drivers make up one-third of truckload operating expenses, the economics are compelling especially when one adds in the cost of hours of service compliance. While they do well on interstates it remains to be seen how soon these vehicles will be able to navigate into cities and industrial parks. Regulatory changes and insurance evaluations along with citizen attitudes remain as hurdles.
- “Uber” for Freight is a hot topic but moving freight is a different animal than moving passengers. Regulations, cargo insurance, monitoring cargo value, pick up times and appointment times for delivery offer a level of complexity difficult to manage through an app. With the amount of venture capital pouring into this, someone is going to have a meaningful service product at some point in 5-10 years. I expect someone like Amazon, who controls their own linehaul freight to breakthrough.
- The Internet of Things coupled with the power of Big Data Analytics we will be able to track inventory and order selection progress. Couple that with replenishment and delivery using sensors and cameras in facilities, on roadways and docks. Every link in the supply chain will be interconnected for data flow. Add in artificial intelligence to make decisions on inventory allocation and freight optimization and it’s a bold new world in the future.
Current trucking conditions
DAT Solutions reports that spot truckload freight volume continued a seasonal decline, falling 12 percent for the week ending Jan. 28 compared to the previous week, but overall rates moved little.
Unlike this time last year, spot freight activity did not drop off sharply toward the end of January as truck capacity increased 4.8 percent. Van load posts were 9 percent lower that week as truck posts increased 4 percent, which sent the load-to-truck ratio down 13 percent to 2.5 loads per truck.
For the month of January, DATS van to load ratio was 3.3 meaning that there are 3.3 loads available for each truck. This is 76 percent higher than January 2016.
Contract loads have stabilized since last April to a range of $1.66 to $1.70 per mile. Carriers will have more pricing power for contract pricing, with the gap narrowing between contract and spot rate, if the strong demand continues into the third quarter this year.
In the week ending February 4th the national spot rate for vans slipped to $1.66 per mile from $1.69 per mile the week before. This occurred despite an uptick in spot market volume in this traditionally slow freight period.
Intermodal is holding its own
The Intermodal Association of North America (IANA) announced that intermodal volumes increased 1 percent in the fourth quarter last year when compare to the same period in 2015.
Shipment declines during the second and fourth quarters resulted in a 2.1 percent decline in intermodal volumes for full-year 2016 compared with 2015. The total of 17.1 million shipments was the first full-year decline since 2008.
Domestic containers posted a 3.4 percent increase in the quarter. International shipments rose 0.6 percent. Declines continued in the trailer segment, which were down 9.2 percent in the quarter.
At Wagner Logistics
Wagner started the year with a lot of momentum and business has not let up as we exceeded budget and are filling our pipeline with opportunities.
Our transportation group has had success in winning additional lanes from customers and is working to strengthen our service offerings in intermodal and LTL.
Our distribution center operations are working on process improvement and searching for ways to drive more value into our customer relationships. People and systems are more important than ever.
If you are considering an RFP process for transportation or distribution center operations please give us a call. We have been in business for 71 years so bring us your challenges. As we say everyday, 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 4,500,000 sq. ft. Current offices include Jacksonville FL, Cleveland OH, Pine Bluff AR, Dallas, TX, Omaha, NE, Clinton, IA, Kalamazoo, MI, Charlotte, NC, Memphis, TN, 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.