Retail rises in August
The Census Bureau reported that retail sales rose 0.6 percent in August, which was the fourth straight monthly gain, but the smallest over that period. Still, retail sales are at a record high despite the global pandemic. The biggest gainers in August included restaurants (4.7 percent), clothing stores (2.9 percent), furniture retailers (2.1 percent), and home and building materials (2 percent). On the flip side, grocery store sales fell 1.6 percent as restaurants recovered. Non-store retailers, which includes ecommerce, was unchanged as consumers frequented more brick and mortar stores.
Compared with a year earlier, sales were up 2.5 percent, the best year-over-year gain since February. Grocery store sales remained elevated, gaining 9 percent from August 2019, while non-store retailers saw a 22.3 percent gain. Restaurant sales, while continuing to improve, were still off 15.4 percent from a year ago.
The latest retail numbers are still encouraging but they are not as inspiring as they had been earlier in the summer. After hikes in retail activity in June and July of between 6 percent and 8 percent the pace slowed in August with a 1.1 percent increase. This is not exactly bad news, but it has created some concern among retailers as they head to their most important time of year. The sense is that this pace is more “normal” and that the pace this summer was reactive. There was a lot of pent-up demand that was unleashed as the lockdowns were partially lifted and now that this rush has dissipated the retailers are settling into what will be a longer-term pattern. There is still very little spending on services as the lockdown orders are still restricting most of these businesses.
The interest now shifts to the holiday season and there are not many clues yet. The back-to-school sales have been miserable because there was no real return to school to spark clothing sales and supplies. This leaves Halloween as the next big date and thus far it has been slower than in past years. The last few years has seen this become an adult holiday with lots of themed parties and that pattern is now in some jeopardy.
Retailers are pushing for another early season and an inventory light strategy. The idea is to turn the whole month into Blackvember with early sales and deep discounts to lure the early shoppers. There is more intensity as far as this strategy is concerned as it is expected that cases of COVID 19 will spike as the weather worsens and that could drive people away from the stores and could even provoke another set of lockdowns. This will punish the procrastinators and leave them with limited options.
The expectation is that home-oriented goods will drive the majority of demand and there is expected to be a decided decline in demand for luxury goods that are meant to be displayed in public at parties and gatherings. There will be more focus on “nesting” and
purchases that can be used to soften the blow of semi-isolation and an inability to travel to be with relatives and friends. To the degree there has been a real shift in consumer behavior and attitude, it will manifest in the next few months. There will be close attention paid to three trends.
The first and most obvious will be whether the online option for shopping continues to accelerate. This was a development that predates the pandemic but has radically increased as those lockdowns were imposed. The second trend to watch is
whether any of the last few months has made people more frugal and careful about going into debt. Third there will be attention paid to what people spend their money on. Will spending on services decline in favor or more goods acquisition?
Manufacturing output increases
The Federal Reserve reported that manufacturing output increased sequentially for the fourth straight month, but at 1 percent in August, it was by far the smallest gain over that period. Additionally, unlike retail sales, output fell on a year over year basis (-6.6 percent) despite an easy comparison from August 2019. Output is still 6.4 percent below its pre-pandemic level.
U.S. industrial production slowed to a modest increase of 0.4 percent in August, far weaker than the strong bounce back recorded in previous months when factories were coming back to life.
The slight uptick followed gains of 3.5 percent in July and 6.1 percent in June, when the industrial sector knocked down by the pandemic began to rebound.
Declines in the mining sector reflected sharp but temporary drops in oil and gas drilling when Tropical Storm Marco and Hurricane Laura forced energy companies to shutter operations in and around the Gulf of Mexico.
U.S. industry operated at 71.4 percent of capacity in August, 10.3 percentage points above its trough in April, but still 8 percentage points below its long-run average.
Finally, the total business inventory-to-sales ratio, which includes manufacturing, wholesale, and retail, fell to the lowest level in July (data is lagged one month) since November 2014, meaning inventories are lean, which is helping truck freight volumes.
Home construction slows
The Census Bureau reported August new home construction starts, which fell 5.1 percent from July, but rose 2.8 percent from a year earlier. All the weakness in August was due to multi-family starts, which plunged 22.7 percent from July and 15.2 percent from August 2019. Conversely, single-family starts rose 4.1 percent and 12.1 percent from July and August 2019, respectively. Single-family permits issued increased to the highest level since late 2007, so there will be plenty of building in the months to come, benefited by low mortgage rates.
Inflation ticks up
The Department of Labor (DOL) reported that inflation at the consumer level, as measured by the Consumer Price Index (CPI), increased 0.4 percent and 1.3 percent from July and August 2019. Similarly, core CPI, which excludes food and energy, rose 0.4 percent and 1.7 percent from July and August 2019.
Still, the prices faced by consumer are likely higher than the CPI indicates. Because the CPI is a fixed basket of goods, it does not account for consumers’ shift in spending patterns through the pandemic. For example, they have spent more on food at grocery stores where prices were up 4.6 percent from a year earlier in August and less on gasoline where prices were down 16.8 percent from a year earlier. Data collected from credit and debit transactions in a Harvard study showed consumers are spending more on goods with rising inflation, which will serve as a headwind coming out of the recession.
FedEx implements increases
FedEx Express, Ground and Freight will increase shipping rates by an average of about 4.9 percent or more, starting Jan. 4, 2021. FedEx will introduce three surcharges on Jan. 18, 2021, including changes to how the Additional Handling Surcharge is assessed for FedEx Express and FedEx Ground for packages greater than 105 inches in length and girth. FedEx Freight will introduce a High Cost Service Area Surcharge in some U.S. zip codes. Some U.S. locations will have an International Out-of-Delivery-Area Surcharge or an International Out-of-Pickup-Area Surcharge, when using FedEx International Express Freight. FedEx is also changing the FedEx Freight fuel surcharge, and it will enforce a late fee for FedEx Express and FedEx Ground invoices, beginning January 2021.
Carrier rate hikes at the end or beginning of the year are not unusual. FedEx's rate hikes are around the same level as its increases at the end of 2019.
FedEx said the increases allow it to invest in "service enhancement, fleet maintenance, technology innovations and other areas.
FedEx Express- An average of 4.9 percent for U.S. domestic, U.S. export and U.S. import services
FedEx Ground and FedEx Home Delivery- An average of 4.9 percent
FedEx Freight- An average of 4.9 percent for customers who use FXF PZONE and FXF EZONE, and by 5.9 percent for customers who use FXF 1000 and FXF 501 for shipments within the U.S.
UPS has increased surcharges throughout the year but has not made an announcement on overall rates for 2021. Last year, UPS increased its rates 4.9 percent in a November announcement.
Current freight market
FreightWaves reports they expect volumes to bounce back quickly next week when their index normalizes. They feel the rest of the year could be very strong for the industry as a whole. Retail inventories are down 12 percent year-over-year, while sales are up 11 percent. The possibility of another round of stimulus before the election would aid this argument. While consumer confidence has faltered, spending is remaining strong given the economic backdrop. These factors lead us to believe that freight volumes could end with a massive bang.
August truck tonnage data, which was issued by the American Trucking Associations (ATA) pointed to ongoing fluctuation within the sector.
The ATA’s advanced Seasonally Adjusted (SA) For-Hire Truck Tonnage Index for August—at 107.5 (2015=100) was off 5.6 percent, from July, which was at 113.9, to August, following a 1.4 percent decrease, from June to July. On an annual basis, August SA tonnage was off 8.9 percent, marking the fifth consecutive month of annual declines, with SA tonnage down 3.4 percent on a year-to-date basis through August.
The ATA’s not seasonally-adjusted (NSA) index, which represents the change in tonnage actually hauled by fleets before any seasonal adjustment and the metric ATA says fleets should benchmark their levels with, came in at 112.9 in August, down 3.9 percent compared to July’s 117.3 reading.
The trucking sectors that haul for the industrial and energy industries are not seeing the surge in freight like the consumer side of the economy. The industrial loads tend to be heavier, so they count more in a tonnage calculation than most consumer-related loads. Fleets hauling for retailers are generally seeing strong freight volumes. Carriers hauling heavier industrial products generally saw softer volumes in August.
The ATA’s data is in line with the Cass Freight Index, which was released this week by Cass Information Systems.
Cass reported August shipments at 1.099 were off 7.6 percent annually, improving over July’s 13.1 percent annual decrease, while rising 8 percent over July.
The report noted that August marks the best annual comparison going back to February, the last complete month of data prior to the onset of the pandemic, adding that the 8 percent sequential gain represents what he called acceleration in trend.
The shipment index is now 19.1 percent higher than the April lows and at the highest absolute level since November 2019. We see it moving higher through year-end, as inventories remain relatively lean.
Lastly, we have the numbers from DAT Solutions for the week ending September 20th. Spot market truckload rates are in their longest continuous rally in five years, as supply chain disruptions continue to push truckload shipments over to the spot market. Load-to-truck ratios did decline for vans and reefers for the second straight week.
Here is the trend for the National Average Spot rates for dry van traffic:
- June $2.16 per mile
- July $2.30 per mile
- August $2.44 per mile
- September $2.58 per mile
Rail volume falls except intermodal
As was the case in July, August intermodal volumes mostly saw sequential gains, while year-to-date volumes, through August, amid the ongoing COVID-19 pandemic, were largely down, according to data provided by the Intermodal Association of North America (IANA).
Total August shipments at 1,575,928, were off 2.7 percent annually. Domestic containers, at 695,999, were up 4.4 percent, while trailers, at 108,901, were up 3.2 percent. All domestic equipment, at 804,900, was up 4.3 percent. ISO, or international, containers, at 771,028, saw a 2.7 percent decline.
U.S. freight railroads hauled 521,956 carloads and intermodal units during the week ending Sept. 19, a 1.3 percent decrease compared with the same week a year ago, according to Association of American Railroads (AAR) data.
Railroads moved fewer carloads during the week, 226,687 units, down 9.6 percent versus the same week in 2019. However, they posted an increase in intermodal volume, which rose 6.3 percent to 295,269 containers and trailers.
Three of the 10 carload commodity groups that AAR tracks weekly posted increases. They were grain, up 3,059 carloads to 22,130; motor vehicles and parts, up 1,539 to 17,610; and farm products excluding grain, and food, up 733 to 15,471.
At Wagner Logistics
As we move through the end of the third quarter, I’m grateful for the team at Wagner as we navigate our way through this strange year. It has been a year of adaption while driving forward on a range of projects.
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 20 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!