The Fed makes their move
In the face of concerns regarding the trade war with China and weakness around the world, the Federal Reserve cut the fed funds interest rate, the rate with which the Fed sets monetary policy, by another quarter point. This was the second quarter point reduction in two months. The latest drop puts the short-term rate to a range of 1.75 percent and 2 percent.
These cuts are a preemptive move to help economic growth during a trade war with China. The hope is that progress will be made when the two sides meet in October.
Housing recovery?
The Census Bureau reported that total housing starts jumped 12.3 percent in August to the highest level since June 2007. While single-family home starts increased a solid 4.4 percent, the real strength in August was the 32.8 percent surge in multi-family units.
Compared with a year earlier, total starts increased 6.6 percent, which was the largest year-over-year gain in twelve months.
National Association of Realtors (NARS) also reports that sales of previously owned U.S. homes rose 1.3 percent in August from July to a seasonally adjusted annual rate of 5.49 million.
The August gain, which came after July marked the first year-over-year uptick in 17 months, strengthened the case that some of the lowest mortgage rates of the past 50 years may at last be bringing more buyers back into the market.
Items associated with new homes like furniture, appliances, carpet, etc., are about 20 percent of the freight market so this is good news if it can be sustained.
August retail gains
According to data released by both the National Retail Confederation (NRF) and the Commerce Department, retail sales were robust in August showing that shoppers continue to carry the U.S. economy.
Commerce reported that August retail sales were up 0.4 percent annually, to $526.1 billion, and were up 0.8 percent over July’s $524.2 billion. It added that total retail sales from June through August headed up 3.7 percent compared to the same period a year ago.
Retail trade sales were up 4.6 percent annually, and non-store retailers saw a 16 percent increase.
NRF reported that August retail sales rose 0.4 percent on a seasonally adjusted basis compared to July and were up 4.6 percent on an unadjusted basis annually. NRF’s data excludes automobile dealers, gasoline stations and restaurants.
Retailers are very bullish about this year’s holiday season because of continued job creation, wage gains and low unemployment.
Retail was well represented at the Council of Supply Chain Management Professionals (CSCMP) conference as there were sessions on inventory planning, last-mile delivery, systems and inventory optimization.
Industrial production rises
Industrial production, a measure of factory, mining and utility output, rose a seasonally adjusted 0.6 percent in August from the prior month according to the Federal Reserve.
The report runs counter to earlier signs of weakness in the industrial sector. Output at U.S. factories, which accounts for about 75 percent of the nation’s total industrial output, rose 0.5 percent last month from July.
Factory output has increased an average of 0.2 percent a month over the past four months, after declining an average of 0.5 percent a month during the first four months of the year. From a year earlier, industrial production rose by a weak 0.4 percent in August, while manufacturing declined by 0.4 percent.
Manufacturing accounts for a small share of gross domestic product, the sector is highly sensitive to shifts in global demand, making it a bellwether for the broader U.S. economy.
Freight companies - making their move
On the heels of Uber Freight’s foray into the load matching business, C.H. Robinson Worldwide Inc. says it will double its tech spending over the next five years, putting $1 billion behind a plan to hire more engineers and developers while expanding digital services.
Uber conducted an hour-long presentation at CSCMP displaying their technology and processes. It was impressive but remains to be seen what level of penetration they will make in the market. It also remains to be seen what the staying power is for a company that lost a whopping $5.2 billion in the second quarter of 2019, its deepest quarterly loss ever.
Truckers and intermediaries have been expanding their capital investments, with much of the money going toward mobile apps and shipment visibility.
Carriers and truckload freight brokers say they’re seeing positive year-over-year volume growth across the board, but overcapacity is preventing rates from rising higher in most lanes. Attracted by 2018’s high spot rates, thousands of new small carriers sprouted up only to meet a falling market and sky-high insurance rates in 2019.
DAT Solutions reports that while capacity is gradually tightening on a national basis, outbound tender rejections have jumped 102 basis points since September 15 to 6.02 percent. It’s not enough, yet, to raise prices on a national basis.
The national average for dry van spot rates is moving mostly sideways, DAT’s chart keeps hitting higher lows, indicating some support for upward momentum.
National tendered volumes for contract freight are still up 3.5 percent year-over-year, but DAT believes that number belies the true strength of the freight economy. The market could turn positive for carriers in the fourth quarter industrial production beating expectations in August, and the NRA projecting heavy holiday sales.
The American Trucking Associations (ATA) seasonally adjusted For-Hire Truck Tonnage Index said that truck tonnage rose 4.1 percent in August compared with a year earlier.
The index also showed seasonally adjusted tonnage increased 4.3 percent year-to-date compared with the first eight months in 2018. At the same time, ATA’s sequential measure of tonnage hauled rose, too.
Trucking serves as a barometer of the U.S. economy, representing 70.2 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 10.77 billion tons of freight in 2017. Motor carriers collected $700.1 billion, or 79.3 percent of total revenue earned by all transport modes.
US rail traffic down for 7th straight month in August
Rail traffic was down for intermodal and carload volume in August compared to the same time last year, according to numbers from the Association of American Railroads (AAR).
U.S. railroads originated 1,055,386 carloads in August and 1,089,849 intermodal containers, which are down 4.6 percent and 5.4 percent respectively from the same period in 2018.
Individual railroads are starting to feel the pinch of these volume declines, continued uncertainty and have subsequently lowered their volume guidance.
Railroads have failed to keep intermodal pricing in line with the lower trucking rates and are therefore non-competitive in the market for a lot of traffic.
In the week ending September 21st, intermodal traffic fell 5.7 percent versus the same week in 2018.
For the first 38 weeks of 2019 compared with 2018, U.S. railroads reported 19,724,836 carloads and intermodal units, down 3.8 percent
At Wagner Logistics
As I led off in this blog, it was great to attend CSCMP’s annual conference with the Wagner Logistics team. Once again, we were pleased to be a sponsor of the event.
It is always a pleasure to re-connect with friends in various industries and meet new people. I have always considered this event as part of my continuing education and after 43 years in this business, it’s important to keep learning. Trust me when I say that this industry is changing fast. Customer expectations are rising, and one must have the people and systems to keep pace.
What may Wagner Logistics do for you?
If you are considering new distribution centers or a freight RFP, I hope you will give Wagner an opportunity to serve you. We have an extensive history of 73 years of service to our customers and would love the opportunity to collaborate with you.
As we say every day, Bring it!
Have a great day,
John Wagner Jr.
About Wagner Logistics
Wagner Logistics was founded in 1946 on the principle that every customer is a big deal and that continues to pervade our mentality, producing a superior customer experience. The company began in trucking and remains dynamic offering top-notch transportation, dedicated warehousing and robust fulfillment services. We strive to produce innovative solutions, in addition to our superior onboarding process which makes transitions seamless, and have been honored 18 years in a row by Inbound Logistics as a Top 100 3PL. Our customers drive our entry into new geographic markets, technological advances and ever-changing distribution challenges. Where do you want to be? Wagner says, Bring It!