Retail drop

It is unknown when the official start date of the recession occurred, but the best guess is March. Retail sales fell 8.7 percent from February, the largest monthly drop in history, dating back to the early 1990s. Additionally, compared with a year earlier, sales fell 6.2 percent, the largest drop since the financial crisis.

There were some large contractions last month compared with February, including: clothing stores (-50.5%); auto dealers (-27.1%); furniture and home furnishing stores (-26.8%); and electronics and appliance stores (-15.1%). Gasoline station sales were off 17.2 percent last month, due to the combination of lower prices as well as less volume. Meanwhile, sales at non-store outlets, which is primarily on-line retailers, rose 3.1 percent, the best month in over a year.          

Restaurant sales plunged 26.5 percent compared with February as people ate out less and surge bought at grocery stores, which saw sales jump 26.9 percent. In fact, for the first time since early 2015, households spent more money buying food and beverages at grocery stores than at restaurants.

Plant production falls

While we are talking bad news, factory output contracted 6.3 percent in March, the largest monthly drop on record dating back to 1972. Compared with a year earlier, output at manufacturing plants fell 6.4 percent as plants shuttered due to stay-at-home orders.

The manufacturing PMI is at 36, any reading below 50 shows contraction.

Unemployment, new highs set

About 4.4 million U.S. workers applied for jobless benefits in the week ended April 18, as reported by the Labor Department. Jobless claims, which are laid-off workers’ applications for unemployment insurance payments, had reached nearly 7 million at the end of March as the coronavirus led to widespread business closures. While the pace of layoffs appears to have subsided since then, workers have filed more than 26.5 million unemployment insurance claims in the past five weeks.

This means that all the job gains from the end of the financial crisis were wiped out in just five weeks. My hope is that many of these workers are furloughed and once the economy is gradually restarted, they will be recalled. Unfortunately, not all those businesses will survive.

How long is this going to last?

Your crystal ball is as good as mine as these are unprecedented times. There is the theory that if the economy restarts in May, we will see a V shaped recovery.  If the summertime brings a recovery, its predicted that we’ll experience a U-shaped recovery. In the worst-case scenario, an economic restart this fall will result in an L shaped or hockey stick recovery.

The longer this drags on, the worse it will be as business will fail and there will not be jobs for workers to return to.

On a positive note, we appear to be on the backside of the curve. Politics are in play so expect a lot of infighting as leaders seek a balance between the need to stay healthy and the need to have an economy. If there is a round two of Covid this fall, all bets are off.

Freight market condition

The grocery, consumer packaged goods, and healthcare industries largely operate in the contract market and have consistent freight demand. Beverages and produce are notable exceptions; beverages experience massive seasonal surges (beer, water and soda in the summer, and wine and spirits around the holidays). Produce freight demand is tied to harvest and picking seasons, which vary by commodity and market.

According to FreightWaves, the larger truckload carriers operate mostly in the contract market. They tend to only participate in the spot market when trucking spot rates are high. They also may take spot freight when there are few other load options available to them. Spot market activity won’t return until after the contract market does, so monitoring tender activity gives us a sense of market direction. If you want to know where the spot market is headed, look to outbound tender volumes.

So, here is the good news. The contract trucking market seems to be bottoming out. The declines we saw in trucking tenders seem to be leveling off and there are signs of a bottom. This makes sense – most of the economy that shut down due to COVID-19 and shelter-in- place orders are largely offline right now.

Over the next few weeks, we can expect that the parts of the economy that impact freight demand will start to come back online. Life won’t return to normal, but the trucking freight markets largely will. The reason is that the parts of the economy which are unlikely to return are the ones involved in sectors that generate little freight demand – concerts, events, public sports. In other words, the really fun things that involve large gatherings. Travel is also expected to be all but shut down. All of this will come back eventually, but probably not until there is a coronavirus vaccine.

Restaurant dining will continue to suffer, but in regard to freight movement, demand is largely fungible between grocery and restaurants. In other words, people are still eating food, just from grocery or takeout versus dining at a restaurant.

Manufacturers and retailers will start to come back on board. This will be good for freight demand. There is a significant backlog of orders in manufacturing sectors that have been shut over the past few weeks. Even with demand being curtailed, this will return.

Looking at measures, the Cass Freight Index fell 9.2 percent year-over-year in March. On a two-year stacked basis, the index was off 10.1 percent.

Cass says the April mark will undoubtedly show an even bigger drop and likely be the worst month in a long time. "There has been a clear divide between winners and losers of these shut-in orders with demand for groceries, home improvement, e-commerce, and consumer staples increasing, while restaurant, auto, and (mall) retail falling to practically zero volume," notes the firm.

The intermodal price index was down 4.4 percent during the month.

The Cass Truck Load Linehaul Index, which measures per-mile linehaul rates excluding fuel and accessorials, fell at a rate not seen since the global financial crisis. The 6.6 percent year-over-year decline was the largest for the index since June 2009, like the declines seen in the first two months of 2020.

Rates for carriers with exposure to consumer-packaged goods or e-commerce have held up better than those carriers that are more business-to-business or industrial-oriented. Even with a spot market rate bump on the recent volume surge, the linehaul index

Looking at the DAT Truckload Volume Index: Rates and volumes increase, then subside as shippers respond to COVID-19. Spot truckload volumes and rates rose sharply for dry van and refrigerated (“reefer”) freight during the first three weeks of March before cresting and spending the final week of the month well below seasonal norms.

Including fuel surcharges, spot van rates averaged $1.87 per mile nationally in March, up 8 cents from February and 4 cents from March 2019. At $2.19 per mile, the national average reefer rate added 10 cents compared to February and matched the average rate of March 2019.

The national average flatbed rate added 4 cents month over month to $2.19 per mile, a 15-cent decline from March 2019.

Looking at the American Trucking Associations (ATA) advanced seasonally-adjusted (SA) For-Hire Truck Tonnage Index for March at 120.4 (2015 volume =100 base) saw a 1.2 percent increase, following a 1.8 percent February gain over January, which came in at 119.

The March 2020 SA index reading saw a 4.3 percent annual gain, which topped February’s 2.6 percent annual increase. And, for the first quarter, total SA tonnage was up 1.5 percent compared to the fourth quarter of 2019 and was up 1.4 percent compared to the first quarter of 2019.

Railroad volume falls

The COVID-19 pandemic's impact on all business sectors continues to be reflected in U.S. freight-rail traffic numbers, with railroads logging 412,503 carloads and intermodal units during the week ending April 11, a 21.9 percent decrease compared with the same week in 2019, according to the Association of American Railroads (AAR).

Total carloads for the week were 198,726 units, down 23.8 percent. Intermodal volume was 213,777 containers and trailers, down 20 percent.

Only one of the 10 carload commodity groups that AAR tracks on a weekly basis posted an increase: Grain was up 595 carloads to 22,237. Volumes for the other commodity groups included coal, down 29,609 carloads to 52,468; motor vehicles and parts, down 15,521 carloads to 2,185; and metallic ores and metals, down 5,982 carloads to 17,949.

At Wagner Logistics

Wagner Logistics remains operational through outstanding hard work by the team. IT projects continue as do our robotics testing. The solutions team continues to evaluate operations for engineered improvements.

Kudos are due to the HR team along with Safety to deal with the Covid related challenges across our network of facilities. Keeping our teams safe while they service our customers is a very high priority.

As always, I hope that we at Wagner 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 may Wagner Logistics do for 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!