The Economy is on a Roll
The slow U.S. economy is picking up steam as we head into an era with the promise of lower household and corporate tax rates, employment security and consumers spending. While the country is divided over politics, it appears the next administration is being handed a growing economy.
From my point of view, I am optimistic about the coming year as we wrap up a solid 2016 at Wagner Logistics. The logistics industry has the wind at its back with stronger consumer spending and manufacturing stabilizing.
Let’s look at the numbers.
Service industries boom
The Institute for Supply Management said its index of non-manufacturing activity rose to 57.2 in November from 54.8 in October. A reading above 50 indicates sector expansion, this is a huge bounce up.
This is the highest reading in 13 months suggesting that everyone from hairdressers to restaurants saw increased business in November. Consumers seem to be benefiting from more job security, higher wages and moderate inflation making them feel free to spend.
Full employment is here
Expect upward pressure on compensation as companies look to add people in a growing economy. With the GDP growing at a 3.2 percent rate in the third quarter coupled with unemployment at a nine-year-low of 4.6 percent, competition for workers will intensify.
The Labor Department reported 178,000 jobs added in November and wages rose 0.5 percent in October for the second month in a row. Notice a trend?
Seasonal workers are hard to find.
Consumers are spending
It should be no surprise that personal spending increased in October, consumes are feeling secure in their jobs, wages rising and confidence high. The Commerce Department reported that spending rose 0.3 percent in October following a 0.7 percent rise in September.
Retail sales expanded 0.8 percent in October after a strong 1 percent gain in September for the best two-month stretch of sales in at least two years. The strong trend in spending is a sure sign that the economy is picking up steam.
I believe that we are going to be seeing an above average holiday shopping season due to the strong on-line and retail sales reported for Black Friday.
Durable Goods are selling
Demand for goods expected to last three years or more increased in October at the fastest pace in a year giving us a sign that the manufacturing sector has begun to stabilize.
Orders for durable goods such as trucks, furniture, appliances and computers rose 4.8 percent to a seasonally adjusted $239.4 billion from a month earlier, the Commerce Department said.
The big October bounce was driven by demand for civilian aircraft, a highly volatile segment. Almost all other categories increased as well. Taking transportation orders out of the mix, demand still increased 1 percent.
This is the fourth straight month of increased durable goods orders.
The seasonal delivery battle is underway
Expecting more packages than ever to be shipped and delivered this month, parcel companies are warning buyers to order early. With over 95 percent of orders bought on-line being delivered by FedEx, UPS, and USPS, they will be expected to handle more than a billion packages.
As I explained earlier, seasonal workers are harder to find and more expensive this year as UPS itself needs more than 95,000 workers to sort packages, load, and drive. FedEx has added 50,000 people while USPS hired 35,000. Average daily volume will double causing delays.
If you plan to order on-line in the U.S., I advise you to circle these dates on your calendar.
UPS Holiday Shipping Deadlines
Dec 18 – Deadline for 3 Day Select shipments.
Dec 22 – Deadline for 2nd Day Air shipments.
Dec 23 – Deadline for Next Day Air shipments.
USPS Holiday Shipping Deadlines
Dec 15 – Deadline for Standard Parcel Post (Mail) shipments.
Dec 20 – Deadline for First Class Mail and Priority Mail shipments.
Dec 23 – Deadline for Priority Express Mail shipments.
FedEx Holiday Shipping Deadlines
Dec 12 – Deadline for SmartPost shipments.
Dec 17 – Deadline for Home Delivery and Ground Delivery shipments.
Dec 20 – Deadline for Express Save shipments.
Dec 22 – Deadline for 2-Day and 2-Day A.M. shipments.
Dec 23 – Deadline for Standard Overnight, Priority Overnight shipments.
Trucking sees a bounce
Following the Thanksgiving holiday volumes bounced up for truckers as the trend has been two steps forward and one back. According to the DAT Solutions data, in the week of November 27th through December 3rd, the load-to-truck ratio for dry vans rose to 4.7. This is the highest ratio for vans since June of 2014, which you recall, was the last year of a strong truck market.
As a result, the national van rate jumped 8 cents per mile, reefers rose a penny, and flatbeds increased two cents.
Confirming the trend, the Cass Freight Index Report for October showed shipments increased 2.7 percent from the same time a year ago. That marks the first year-over-year hike in 20 months, with the gauge hitting a level of 1.121. This is also the highest reading since September 2015 and a 0.9 percent improvement from September.
Time will tell if this is just a surprisingly higher seasonal bump, or the beginning of a longer-term trend favoring motor carriers. This may be the beginning of the pendulum swinging back to favoring carriers in pricing power with fuel creeping higher.
Railroad volumes
The Cass Intermodal Price Index fared better in October, increasing 0.4 percent compared to October 2014. This marked the first year-over-year increase after 21 consecutive months of declines. Its reading of 130.4 is also the highest since April 2015. This gauge indicates market fluctuations in per-mile U.S. domestic intermodal costs that includes all costs associated with the move, such as linehaul, fuel and accessorials.
The Association of American Railroads (AAR) reported last November’s volumes with carloads up 0.4 percent and intermodal loads increasing 1.9 percent from the month before.
Carload commodity groups showing growth include grain up 18.6 percent, chemicals up 1.9 percent and crushed stone/gravel/sand up 2.5 percent. Commodities that saw declines in November 2016 from November 2015 included: petroleum and petroleum products, down 15.4 percent, coal, down 2 percent, and motor vehicles and parts, down 3.5 percent.
Excluding coal, carloads were up 1.7 percent in November 2016 from November 2015.
At Wagner Logistics
As I led off in this blog, Wagner is wrapping up a solid year where we added 3 distribution centers to our network and made a significant move from a 350,000 sq. ft. facility to a much larger 650,000 sq. ft. facility.
We have successfully rolled out a new warehouse management system, an accounting system and a variety of other systems updates. Our safety numbers are very good, I could not be more proud of the team at Wagner as the service and value delivered was exceptional.
Kudos to the fulfillment team who handled a five-fold increase in B2C orders over Black Friday and Cyber Monday.
Congratulations go to the transportation team for growing revenues during a tough freight market.
I appreciate the efforts of the back office people in accounting, payroll, human resources, safety, marketing, engineering, and information technology. Using a football metaphor, they are like linemen getting no attention unless they are offside or miss an important block. Thank you for your commitment to serving the operating teams.
If you are considering a network change in 2017 by adding new DCs or looking for dedicated trucks or capacity to service your lanes, I ask that you consider Wagner Logistics. With 70 years of business experience behind us, we say “Bring It” every day!
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.