Supply chain impact
Production delays will cause weak container traffic entering the U.S. affecting intermodal marketing companies and railroads creating lower volume over the remainder of March. Steamship lines have already felt this and have responded with fewer sailings. Trans-Pacific air freight is robust and will only grow further as factories regain their production.
This disruption has exposed problems in the supply chains. A lack of buffer inventory will hurt companies when they run out of stock and/or require higher transportation rates to maintain inventory levels. Just-in-time materials management programs are deeply affected.
At Wagner, we already seeing motor carrier reluctance to handle loads to the west coast, particularly Washington state.
Airlines, cruise lines, and hotels will feel the effects as the coronavirus spreads throughout the U.S. In the many weeks ahead, we should expect "new" cases popping up, which should lead to further erosion of consumer confidence, more canceled events (sporting events, conferences, work meetings, non-profit fundraisers, and more), school closings, and lower actual spending. This lower consumer spending should be modestly offset by the lower gas prices due to the oil war between Russia and the Saudis.
I expect this to lead to a mild recession, something I regarded as absurd before the outbreak.
February payroll gains
Prior to the pandemic, the Department of Labor (DOL) reported that jobs expanded dramatically to 273,000 in February. The unemployment rate fell to 3.5 percent, a fifty-year low.
Construction jobs, due to warmer than normal weather, jumped by 42,000 last month after surging 49,000 in January. Factory payrolls jumped by 15,000 last month, but the solid gain was preceded by a 20,000-job cut in January.
Conversely, retail jobs fell 5,800 and 7,000 in January and February, respectively.
Transportation and warehousing payrolls fell by 4,000 last month, but in January jumped nearly 30,000. Employment for transportation industry, excluding warehousing, contracted nearly 9,300 in February.
For-hire trucking employment rose 1,700 according to the DOL. In January, trucking payrolls increased by 1,300. On average per month in 2019, industry employment only rose by 367 for the industry.
Wages increased 3.0 percent from a year earlier in February, in line with recent months.
Bottom line, prior to the COVID-19 outbreak, we were on track for a decent year. Now we know that the economy is at risk and we will surely see layoffs in the hospitality and travel industries.
Earlier this week, the Federal Reserve decreased the fed funds rate, which is the rate with which it implements monetary policy, by 50 basis points.
We just don’t know where this is headed and as one who follows the stock market can see, investors hate uncertainty. Still no immediate sign of a recession, but instead we could see GDP growth sub-2 percent rather than at or slightly above 2 percent. Two consecutive quarters of negative growth signifies a recession.
Institute for Supply Management reports
February saw solid growth for non-manufacturing, according to the most recent edition of the Non-Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).
The index ISM uses to measure non-manufacturing growth, known as the NMI, was 57.3 in February (a reading of 50 or higher indicates growth is occurring), which topped January’s 55.5 by 1.8 percent. The NMI headed up for the 121st consecutive month, and the February NMI is 4 percent above the 12-month average of 55.3, as well as the highest reading over that span.
U.S. Ports see lower volume
Facing strong headwinds from the lingering effects of the U.S.-China trade war, the slowdown associated with the Chinese New Year, and later the coronavirus, most of the nation’s ports saw container volumes fall in January.
The Port of Los Angeles, the nation’s busiest, saw the number of 20-foot equivalent units fall 5.4 percent in January when compared with 2019. The port processed 806,144 TEUs compared with 852,449 a year ago.
The nearby Port of Long Beach, the nation’s second busiest, saw a 4.6 percent year-over-year drop in January. The port processed 626,829 TEUs compared with 657,286 in 2019.
The downturn is not limited to the West Coast ports, which rely heavily on cargo to and from China. The nation’s third-busiest port, the Port of New York and New Jersey, saw its monthly container volume slip in January by 0.9 percent, to 617,024 TEUs compared with 622,531 during the year-ago period.
The Port of Oakland saw a dip of 0.6 percent in January, processing 211,160 TEUs compared with 212,433 in 2019. Port officials expressed concern the rest of the first quarter could produce lower numbers.
The Northwest Seaport Alliance, which operates facilities in Seattle and Tacoma, Wash., saw a 19.1 percent year-over-year drop in TEUs as it processed 263,816 containers compared with a record 326,228 last January
On the East Coast, the Port of Savannah saw a 12.7 percent decline in January volume as the port processed 377,672 TEUs compared with 433,079 in 2019.
The Port of Houston was one of two major ports to post year-over-year increases for January. The other was South Carolina's Port of Charleston.
There were no specific indications that supply chain disruptions due to the COVID-19 outbreak affected spot truckload freight in a significant way during the week ending March 1st. This may change in the coming weeks depending on import levels, how quickly Chinese ports can reduce their backlogs, and when those delayed sailings start to arrive here.
DAT Solutions reports that the national average spot truckload rates were in line with seasonal expectations and load-to-truck ratios inched higher during the final week of February. Stable rates and ratios at this time of year are signs that shippers are emerging from a typical mid-winter lull.
National average spot rates, February
– Van: $1.79 per mile
– Reefer: $2.09 per mile
– Flatbed: $2.14 per mile
National average rates were higher at the end of the month and entered March at $1.88 for vans, $2.15 for reefers, and $2.35 for flatbeds.
Rail volume continues to fall
North American rail volumes declined 6.6 percent year-over-year in February compared to the 3.8 percent decrease in January. On a two-year stacked basis, this month's volumes were -8.5 percent compared to -3.5 percent last month. While COVID-19 may have played some role in the weakness, volumes were also negatively impacted by rail blockades in Canada, accelerating coal declines and lingering headwinds from trade and economic uncertainty.
Looking ahead, expect rail volume weakness to persist in the near term and believe the outlook for a recovery in the second half of the year has become increasingly unclear.
Despite uncertainty over the potential economic effects of the COVID-19 outbreak, the impact on rail traffic so far has been limited according to the Association of American Railroads (AAR).
Last month's 8.1 percent decline in U.S. freight rail traffic compared with February 2019 levels was primarily due to a reduction in coal carloads.
Railroads transported 1,924,767 carloads and intermodal units in February. Total carloads fell 7.3 percent to 927,084 units, while intermodal volume slipped 8.9 percent to 997,683 containers and trailers compared with year-ago figures, according to AAR data.
At Wagner Logistics
Spring like weather has come to our hometown, Kansas City and that triggers conference season. We have a team in Atlanta currently at MODEX reviewing the latest in material handling systems. The IWLA conference is questionable as to whether it will be held. In early April we will have a team attending the Transportation Intermediaries Association’s conference in Austin if it is held.
Continued learning and searching for better methods are part of who we are at Wagner Logistics. It’s critical that we remain on the leading edge in technology trends.
As you look forward to your year, I hope that we may have the opportunity to demonstrate our commitment to making your supply chain better. The Wagner team is innovating and continually improving our people and systems.
What can 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 74 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!