Logistics managers index improves
Researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, University of Nevada, Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP) issues a monthly index which bears watching.
They tell us that in a shift from April’s all-time low overall score of 51.3, May’s Logistics Managers’ Index (LMI) is up to 54.5, a score much more in line with the previous six months of logistics activity (overall scores between 54.0-54.4 from October 2019 to January 2020). In April’s report, they observed a somewhat bifurcated logistics industry, as warehousing and inventory metrics came in high, and transportation metrics continued to struggle. This is likely because firms, particularly those upstream from the consumer, are saddled with high levels of unsellable inventory, driving up their storage costs. Transportation remains slow, although it seems it has stabilized since last month.
If you’re a retailer only one side can win. On the one hand, U.S. consumer spending plummeted 13.6 percent in March. That was higher than the already bleak outlook for a 12.8 percent downturn. On the other hand, the personal savings rate increased by 33 percent and incomes were up 10.5 percent, some of which were boosted by the stimulus.
One of the major arguments for a bullish recovery is the phrase “pent-up demand”. Consumers are keeping their powder dry and will be ready and willing to spend as the economy reopens, but this may not be an accurate narrative.
There are now 40 million Americans that have filed for unemployment. The additional benefits that have, in some cases, been allowing Americans to earn more by not working are set to expire in July.
The irresistible force is the amount of money that Americans will have to spend. The immovable object is that they may be limited to where they can spend it for one. And second, they may be hesitant to spend.
Things were tough in retail before the words “flatten the curve” flattened their sales. We knew that many retailers wouldn’t make it through. And we’ve already seen venerable retailers like J.C. Penney and J.Crew file for bankruptcy. Sadly, they won’t be the only ones.
Factory activity bottoms out
Surveys of purchasing managers at manufacturers in the U.S., Asia and Europe offered signs that the decline in global factory activity is starting to bottom out after the record fall seen in April. However, sentiment remained negative, suggesting any recovery in the months ahead could be tentative.
The U.S. Institute for Supply Management’s manufacturing index for May rose to 43.1 from an 11-year low of 41.5 in April. The index’s core components all remained well below the 50 level that marks the threshold between contraction and expansion. Most survey respondents said both production and new orders worsened in May from April, and two-fifths reported lower employment levels.
The factory indexes add to other signs the U.S. and other countries may have reached an economic bottom, though recoveries could be slow. Unemployment is up sharply across the globe. Services industries, hit particularly hard by the virus, are just starting to recover. And consumer spending, an important catalyst for the U.S. and other economies, remains weak.
Housing starts fall
As one would expect in these difficult times, April housing starts fell to the lowest level since early 2015. Housing starts had been increasing nicely and we were optimistic on this sector prior to the pandemic.
The US inventory-to-sales ratio hit a record high, which will be a drag on growth in the coming months.
Federal Reserve sees some positives
Despite all the bad numbers, there were a few signs of a little recovery in some areas.
In the New York Fed’s district, which includes the virus’s U.S. epicenter, “business contacts tended to be less pessimistic than in the prior report about the near-term outlook, and those in the manufacturing, construction, real estate, and health services sectors expected modest improvement.” While consumer spending continued to decline overall, “there have been scattered reports of a nascent recovery in early May.”
In Cleveland Fed’s district, some retailers started to bring back staff in limited numbers as businesses could reopen, while one staffing firm reported that his clients were starting to increase hours or bring back laid-off workers.
Firms in several parts of the country reported concerns that generous unemployment benefits might make it more difficult to rehire workers. A federal stimulus law temporarily provides a weekly $600 federal supplement to normal unemployment insurance, which is allowing lower-wage workers who were laid off to earn more money than when they were working.
Surging e-commerce volumes during the coronavirus pandemic has created stress on the U.S. Postal Service’s parcel network as staffing shortages and backlogs in hard-hit areas slow deliveries.
The problems have delayed some packages for days and even weeks, shippers and consumers say, when many people are shopping more online to avoid infection with the virus.
The slow deliveries have complicated business for e-commerce sellers who rely on the Postal Service to ship packages at affordable rates, and tracking services have added to the frustrations, with some items appearing to get stuck at certain locations or vanishing altogether.
Like private delivery giants United Parcel Service Inc. and FedEx Corp., the Postal Service is coping with unexpected holiday-level package volumes as the pandemic adds to operational and financial stresses. UPS is imposing extra fees to help offset those costs, while FedEx is limiting the number of items some retailers can ship from certain locations.
Drivers earnings rise
The American Trucking Associations (ATA) reports that truck drivers are taking home bigger paychecks as demand for talent grows nationwide, according to their latest Driver Compensation Study.
ATA says its study shows that truck drivers earned an average $58,000 in 2019, including bonuses, a $6,000 increase compared to data from ATA’s previous study in 2017. The average reflects rates for truckload national, irregular route solo van drivers.
Among the benefits responding fleets provide - paid leave, insurance, meals and other incidentals, and retirement plans. More than 90 percent of truckload carriers, less-than-truckload carriers, and private fleets surveyed said they offered drivers paid leave and health insurance, according to the study.
Current trucking market
Truck tonnage hit a record in April, however, it wasn't a good record. ATA says, April’s monthly decline was the largest in 26 years when a major strike occurred.
American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index contracted 12.2 percent in April after increasing 0.4 percent in March. In April, the index equaled 104.9 (2015=100) compared with 119.5 in March.
Trucking serves as a barometer of the U.S. economy, representing 71.4 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 11.49 billion tons of freight in 2018. Motor carriers collected $796.7 billion, or 80.3 percent of total revenue earned by all transport modes.
More than 45 percent of fleets say they expect to see an increase freight levels over the next 30 days, while only 19 percent expect to see a decrease, a clear signal that carriers expect to see customers shuttered by stay-at-home orders begin to reopen.
Knight-Swift Transportation, the largest truckload carrier in the U.S., believes the worst is over. Pent-up consumer demand, possibly boosted by increased household savings rates, could stimulate Knight-Swift's business. Another factor could be produce season, and warmer temperatures, which will stimulate "beverage season”.
The gap between spot rates and contract rates are beginning to shrink, after spot rates hit an unnatural low. The shrinking gap will cause shippers to prioritize the arrival of their goods.
DAT Solutions reports that in the holiday influenced week ending May 31st, spot market recovery sped up. There was a large increase in load-to-truck ratios, indicating higher demand for dry van, refrigerated and flatbed shipments. Truckload rates followed suit, rising on most lanes and gaining momentum as we head into June, typically a peak month for the spot market.
The national average dry van rate in May came in at $1.60 per mile while so far in June, pricing has jumped to an average of $1.68 per mile.
Rails are still suffering
U.S. railroads originated 740,171 carloads in May 2020, down 27.7 percent, or 282,965 carloads, from May 2019. U.S. railroads also originated 912,922 containers and trailers in May 2020, down 13 percent, or 136,241 units, from the same month last year. Combined U.S. carload and intermodal originations in May 2020 were 1,653,093, down 20.2 percent, or 419,206 carloads and intermodal units from May 2019.
At Wagner Logistics
Wagner Logistics remains operational through the pandemic with our associate’s safety in mind. We’re working on some interesting new business opportunities and, despite the current economic challenges, remaining hopeful for the year.
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!