Retail sales up but on the low side of expectations

The Census Bureau reported that retail sales increased 0.2 percent in November. Despite the lower than expected gain, November sales marked the highest level on record. Core sales, which exclude the volatile motor vehicle and gasoline stations categories, remained unchanged compared with a month earlier. Total sales and core sales were both up 3.5 percent from November 2018.

The Commerce Department is more pessimistic about the start to the holiday season than separate data that suggests strong sales so far, particularly in online spending.

Online holiday sales were up 14.1 percent from a year ago at $105.4 billion so far, according to Adobe Analytics, it tracks activity on thousands on websites.

October retail sales were revised slightly higher in Friday’s report to a 0.4 percent increase.

As the traditional start of the holiday-shopping season, November is a key month for retailers, especially for department stores, clothing outlets and online sellers. 

Agreements on trade             

Trump ran for office in 2016 on a pledge to remake or blow up the North American Free Trade Agreement. It appears he has been successful using a combination of pressure tactics and closed-door negotiations to win support for an amended version from Democratic lawmakers, labor unions and Mexican officials. I expect this to be passed before the impeachment trial begins in January.

In the Chinese trade battle, China officials have confirmed agreement on a phase one deal although the details are not yet known. We won’t know until we see a written agreement, but it appears pork producers and farmers will benefit from grain sales.

Going into 2020 this is good news if the agreement holds. Anything that brings some certainty will help businesses as they plan for the future.

Job creation continues, wages rise

The Department of Labor reported that 266,000 jobs (net) were added in November, well above the consensus forecast of 187,000. Also last month, the unemployment rate fell to 3.5 percent. The unemployment rate matched September’s level, the lowest since December 1969.

Reflecting the surge in eCommerce, transportation and warehousing saw employment surge of 15,500. Nearly all the gains in were in warehousing (8,000) and couriers and messengers (5,100). For-hire trucking, conversely, reported a drop in employment of 1,000 workers.

As one would expect, the fight for labor is raising wages as competition for workers continues. The lowest-paid U.S. workers are getting some of the biggest raises. The November jobs report hinted at the disparity, showing that average hourly earnings for nonsupervisory workers grew 3.7 percent from a year earlier, while wages for all workers were up a more modest 3.1 percent. The implication: rank-and-file workers are getting bigger raises than their better-paid bosses.

New housing gains, existing homes soften

The Commerce Department said housing starts, a measure of U.S. home-building, increased 3.2 percent in November from October to a seasonally adjusted annual rate of 1.365 million. Residential permits, which forecasts future home construction, also rose 1.4 percent from the previous month to a seasonally adjusted annual rate of 1.482 million.

The housing sector has strengthened this year following a slump that began in late 2018. The National Association of Homebuilders reported Monday that a gauge of home-builder confidence hit its highest level in 20 years this month.

The National Association of Realtors data on November sales of previously owned homes, slide 1.7 percent from October to November. This is the second drop in three months and a sign limited inventory is likely constraining would-be home buyers.

Sales were up 2.7 percent last month year-over-year, the fifth straight month of year-over-year gains.

Institute for Supply Management’s forecast expects a rebound

Growth for both the manufacturing and non-manufacturing sectors in 2020 is expected to remain intact, according to the Institute for Supply Management’s (ISM) Semiannual Economic Forecast.

Data for this report is based on feedback from U.S.-based purchasing and supply chain executives in manufacturing and non-manufacturing sectors.

For manufacturing, ISM is estimating a 4.8 percent annual increase in 2020 revenue, which is up from the 1.9 percent increase that was pegged for 2019 over 2018. What’s more, 58.1 percent of manufacturing respondents expected 2020 revenues to be higher than 2019. And revenue growth in 2020 is expected to see annual gains in all 18 manufacturing industries ISM tracks.

On the non-manufacturing side, the report expects, 2020 revenue to see a 3.4 percent annual gain, which comes in 1 percent shy of the 4.4 percent 2019 revenue increase over 2018, with 17 of the 18 non-manufacturing sectors tracked by ISM expecting 2020 revenue gains.

If this truly happens, it should help the U.S. freight markets in 2020.

Container imports decline in L.A.

The Port of Los Angeles reports a 12.2 percent decline in loaded containers imported in November year-over-year. The likely culprit is tariffs and the diversion of ships to the gulf and east coast ports who have seen a rise in activity.

This change is permanent and likely to continue as the expansion of the Panama Canal makes ocean shipping from the Pacific to the Atlantic far more efficient relative to trucking or rail from the West Coast to the East Coast.

In the past 3-4 years, there has been about a 0.90 percent share growth each year in U.S. East Coast volumes relative to the U.S. West Coast. While it does take 2-3 weeks longer to ship from China to the East coast vs the West coast, the cost savings are potentially dramatic given the per-unit economics per mile.

Carrier bankruptcies abound

For the last several blogs I’ve been describing the hardships and headwinds facing the truckload industry. HUGE increases in insurance costs, low freight rates, tariffs, slower manufacturing output, high levels of inventory at the retail level, and higher costs for equipment and drivers have all contributed.

According to data firm Broughton Capital, 795 companies have failed in 2019. That means almost 24,000 trucks were removed from the nation’s capacity. Compare that to 2018 when 310 trucking companies left the market taking 2,805 trucks out of service.

The latest victim, Celadon, was operating a fleet of some 3,300 tractors and 10,000 trailers with nearly 4,000 employees. Estimates of the number of drivers in the fleet range to over 3,000.

In addition to Celadon Group, other big companies that went under include New England Motor Freight, which employed more than 1,400 drivers, HVH Transportation, Falcon Transport and LME.

Expect this trend to continue as added pain will come from labor laws designed to protect contracted workers from being misclassified. In California, for example, a law will go into effect in January that will make it harder for companies to classify workers as contractors, which the California Trucking Association has said could put 70,000 owner-operators in the state out of work. The group has sued to prevent the law from taking effect.

Capacity should rebalance over the course of 2020, but don’t jump to the conclusion that capacity is tightening because of carrier failures. Even the largest bankruptcy in truckload history accounts for just 0.2 percent of the active fleet, or about 3 percent of the Class 8 tractor capacity that was added over the past year, and the equipment will be remarketed.

Current truckload market improves seasonally

The holiday rush is underway as last week. According to DAT RateView, van rates hit their highest level since January, as the national average jumped to $1.94 per mile. That's 12¢ higher than the November average and just 2¢ shy of last January's peak. Rates increased on 77 of the top 100 lanes while only 8 lanes declined and 15 stayed the same.

The upward trend is just getting started. The load-to-truck ratio doubled for vans compared to the previous week due to pent-up demand to move freight that didn't make it onto trucks before Thanksgiving.

Rail woes continue

Growth in rail freight has been hampered this year by competition from trucking, in part driven by trucking’s falling rates and extra capacity. The Association of American Railroads (AAR) officials state that through the end of November, North American rail volume was a combined 33,846,755 carloads and intermodal units. That is down 3.6 percent compared with the same period in 2018.

The AAR said the U.S. rail traffic slump continued in Week 49 ending December 7th with railroads logging 517,130 carloads and intermodal units, down 9.4 percent compared with the same week last year.

At Wagner Logistics

As we wrap a record year at Wagner Logistics, I am grateful for the men and women who please our customers everyday on the front lines and the incredible teams that support them. They are the reason Wagner has doubled in size since 2015.

In the coming year we will continue our growth through offering a great value for our services. I’m particularly excited about our adoption of a Warehouse Execution System that is the precursor to introducing robotics in 2020.

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!