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Supply Chain blog by John Wagner Jr, Wagner Logistics

We are halfway through the third quarter and the economy still seems flat, and the freight market is reflecting this trend. Let’s take a look at what’s happening in the economy and world of logistics. 

The Department of Labor reported that a net 215,000 jobs were added in July, with 210,000 coming from the private sector. Manufacturing was responsible for 15,000 jobs and construction added 15,000. The services sector contributed 193,000. Transportation and warehousing employment grew by 14,400 jobs. 

The unemployment rate remained at 5.3 percent in July, and all eyes are on the Federal Reserve to see if they begin inching up the lending rate in September. The Fed considers 5.0 to 5.2 percent close to full employment. 

The Commerce Department said the gross domestic product grew at a 2.3 percent rate in the second quarter, which isn’t impressive. Coupled with a first-quarter growth rate of 0.6 percent, the year’s growth overall is proving to be much slower than expected. Most are blaming declining inventories and lower corporate investment spending. 

July surveys are revealing that consumer sentiment is falling. The University of Michigan's consumer sentiment index slipped to 93.1 in July from 96.1 in June. The Conference Board said that 55 percent of consumers believe the national economy is getting worse. Wage increases are happening but at the slowest rate in 33 years. Excluding commissions/bonuses, TD Securities reports compensation was up 0.6 percent in the first and second quarters.

It’s no wonder, then, that consumer spending grew from a 1.8 percent annual rate in the first quarter to 2.9 percent in the second, which is actually weak. Despite lower gas prices and a stronger housing market, consumers seem to be conservative in their spending. 

Some good news arrived Thursday when the Commerce Department reported retail sales rose 0.6 percent in July, with auto sales up 1.4 percent. It will be interesting to see what the back-to-school retail numbers look like, as they should be a good preview for the upcoming holiday season. 

Economists are predicting a 3.5 percent GDP growth rate for the remainder of the year, which, if it happens, will cause a return to the capacity crunch that has moderated in the last few months. 

Transportation News

The Cass Freight Index for July shows a decline in spending and shipment volume, reflecting that lower consumer spending. Spending on freight was down 6.4 percent in a July year-over-year comparison, while the number of shipments fell 1.1 percent in the same period. 

Confirming the Cass trend, the U.S. Bureau of Transportation Statistics said that truck, water and rail intermodal shipments dropped 0.6 percent from the previous quarter, the biggest drop since the third quarter of 2012. Some contributing factors:

• U.S. companies moving fewer exports due to a strong dollar and the slow economies in Europe and Asia.
• Weakness in the energy sector with reduced rail traffic carrying coal and oil.
• Retailer efforts to reduce inventories and the corresponding reduction in factory output. 

As I mentioned earlier, I expect freight to rebound in September and October as consumers begin to shop. For now, it appears that truckload capacity is available and carriers are reporting solid earnings, benefiting from their rate increases over the last year. Larger shippers have locked in capacity to avoid last year’s truck shortage. 

DAT reports that in the week of Aug. 2-8, freight availability increased but with the availability of capacity, dry van national average rates went down 3 cents, from $1.82 to $1.79 per mile. 

In the LTL trucking industry, we’re also seeing softer volume but pricing is holding steady. Don’t expect a general rate increase to hold up the remainder of the year. LTL carriers are trying to hold the line on pricing, even to the extent of “firing” customers if they are not willing to pay the demanded rates. Look for a reduction in blanket pricing by LTL companies even though the carriers are getting a real break on lower diesel fuel. 

U.S. rail intermodal traffic declined 0.3 percent in the week ending Aug. 1, according to the Association of American Railroads. This is the first drop since March, when the West Coast ports were in turmoil and winter weather was hampering the movement of freight. 

July intermodal traffic increased 3.5 percent to 1.33 million units and carload traffic fell 6.5 percent to 1.38 million carloads. As I said earlier, the energy sector is taking its toll on the railroads. 

In the world of warehouse-based logistics, we’re seeing increased rents for industrial properties nationwide. Facility absorption is occurring as companies lease facilities in strategic geographies to match the Amazon-inspired speed-to-consumer experience. Port cities, too, are seeing greater lease activity on the east coast as shippers look to avoid the West Coast and prepare for larger ships through the Panama Canal. 

Here At Wagner 

At Wagner Logistics, we are preparing a distribution center in Kansas for a quick start for a new client using our proprietary IT-in-a-Box solution. Staffing and material handling plans are underway, as well as the transportation shuttle sending parts to manufacturing and backhauling finished goods. 

We are also gearing up for the retail holiday season and have a number of floor-ready pallet display projects in the planning process. One is a food product and we are tweaking our systems to track which lots are placed on what pallet by retailer location. Pallet displays now soak up IT time, where once they were simply labor-intensive. 

In transportation, we are enjoying the moderation in capacity and moving loads for a number of new customers. We are also experiencing growth with our existing customers and have some exciting opportunities opening up for our talented transportation group.  

Should you be looking at any supply chain challenges, need a new distribution center network, or are simply looking to replace a weak performer, give me a call! As we say every day, 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!