Retail sales disappoint

Retail sales disappointed by falling 0.3 percent from August, with most retail categories contracting from the previous month. Motor vehicle sales fell nearly 1 percent, while building materials and home improvement. Core sales, which exclude the volatile motor vehicle and gasoline stations categories, were flat in September. In August, core sales rose 0.4 percent. 

Compared with September of last year total sales were up 4.1 percent along with core sales rose 4.5 percent. Overall, Consumer spending is the foundation of economic growth and trucking.

Factory output slides

Manufacturing production in the U.S. fell in September, proof that that slowing global growth and trade frictions are weighing on the economy.

After increasing 0.6 percent in August, factory output contracted 0.5 percent in September. Unlike retail sales, factory activity is below the levels of a year ago. In September, output contracted 0.8 percent, the third straight year-over-year contraction and the largest over that period.

On a positive note, output rose 0.3 percent in the third quarter over the second quarter. This fits with the growing but slowing overall economic output expectations.

Housing mixed

New housing starts dropped 9.4 percent in September according to the Census Bureau but remained slightly above the 2019 average. All of September’s weakness was in multi-family units, which plunged 28.2 percent.

Sales of previously owned homes declined in September, showing that high prices and slim inventory continue to weigh on the housing sector despite low interest rates, strong employment and firmer wage growth.

Existing-home sales fell 2.2 percent in September from the previous month to a seasonally adjusted annual rate of 5.38 million, the National Association of Realtors (NARS).

Year-over-year, sales in September rose 3.9 percent. Purchases of previously owned homes account for the bulk of U.S. home-buying. August’s sales were revised up slightly to a 5.50 million pace from an earlier estimate of a 5.49 annual pace.

Waiting for the seasonal freight surge

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

According to American Trucking Associations' For-Hire Truck Tonnage Index, truck tonnage for the month of September rose 3.5 percent compared with year-ago levels and inched up on a sequential basis over August 2019. In September, the index equaled 117.6 compared with 117.3 in August. In calculating the index, 100 represents the year 2015.

The findings were also positive on a quarterly basis with the third quarter index up 1.2 percent over Q2 and up 4.5 percent year-over-year.

DAT reports that despite higher freight volumes in several key markets, load postings fell 5 percent nationwide and truck posts dipped 1 percent during the week ending October 22.

National Average Spot Rates for October (through Oct. 22)

  • Van: $1.81 per mile, 3 cents lower than the September average
  • Flatbed: $2.20 per mile, unchanged compared to September
  • Reefer: $2.12 per mile, 4 cents lower than September

What does all this mean? In my opinion there was a lack of discipline on the part of truck fleets last year in adding equipment. While there is a lot of freight this year, there are even more trucks chasing it now creating pricing pressure on fleets which won’t be resolved until capacity comes out of the market. I suspect this will happen in Q1 and Q2 of 2020 as a combination of factors come into play.

  • Nuclear jury awards in truck crashes are chasing insurers from the market causing enormous increases in truck insurance, putting cost pressure on small and mid-sized carriers.
  • Year end cash requirements to renew licenses and tags. The states want their money and the current low freight rates are making less of that available.
  • The National Drug & Alcohol Clearinghouse goes into effect. If a driver fails a test at company A he/she will not be able to go to company B and get a job later. I’ve seen a lot of estimates about percentage reduction in the driver force but its unknown what the actual driver reduction number will be. With pot legal in at least 11 states, this will continue to be a challenge.

Expect flat to lower pricing going into 2020 with rates rising throughout the year.

In the world of LTL carriers, even the best of breed is feeling the effects of a slower economy. Old Dominion Freight Line reported diluted third-quarter earnings of $2.05, down 7 cents a share from a year ago.

LTL revenue, which accounts for virtually all of Old Dominion’s total revenue, fell 0.6 percent year-over-year, the first such decline in more than three years. Earnings before interest and taxes took a 5 cent a share hit due to $4.9 million in pre-tax losses from property and equipment disposals.

Operating income fell 4.8 percent to $217.5 million, while net income declined 5.4 percent to slightly more than $164 million as daily tonnage fell 5.2 percent.

Continued woes in railroading

There’s no bottom in sight as the decline in carloads for Class 1 railroads widened to 5.5 percent in the third quarter, the biggest drop in three years, according to weekly reports from the Association of American Railroads. Shipments are down for autos, coal, grain, chemicals and consumer goods, with crude oil the only bright spot.

The rail downturn underscores the damage from the U.S.-China trade war, which is making shippers more cautious and crimping freight. Companies that stocked up on inventory last year amid tariff threats are now working it off. Adding to the cargo drop, a brief rise in coal exports has fizzled and bad weather has delayed crop harvests and dragged down grain carloads.

While a railroad recession doesn’t necessarily presage a broader slump, it’s a dramatic turn from a year ago when rising shipments of autos, coal, lumber, chemicals and other commodities spurred U.S. rail carloads to rise 3.6 percent in 2018. Last year’s hot freight market jacked up trucking prices, and transportation costs spiked for companies.

Earnings are holding up at the four large publicly traded railroads in the U.S., which have adopted an efficiency strategy developed by Hunter Harrison who developed the concept of “precision scheduled railroading” at CSX.

At Wagner Logistics

As gloomy as the numbers are, we are not seeing it at Wagner Logistics as we are on track for another good year. We continue to add business and renew existing agreements as customers view Wagner as a trusted partner in their supply chain.

The team at Wagner continues to work introducing improved processes to drive efficiencies and contain costs. We continue to invest in technology in all areas from distribution centers to transportation to back room operations.

I for one am bullish on 2020 as we continue to see new opportunities.

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!