Retail sales surprise to the upside
The Census Bureau reported that retail sales in September increased 1.9 percent from August, well above expectations. Much of the gain was driven by sales in motor vehicles and parts, which rose 3.6 percent from August. Consumers continued to spend more at gasoline stations and at restaurants and bars, while spending at grocery stores remained unchanged. This is the fifth month in the row U.S. retail sales increased as Americans stay home working.
Compared with a year earlier total sales jumped 5.2 percent in September. Online spending and sales at grocery stores surged 23.8 percent and 9.6 percent, respectively, compared to a year earlier. Though improving, sales at gasoline stations and restaurants were off 13.3 percent and 14.4 percent, respectively, from September 2019.
Still, other data indicate the economic recovery is losing momentum. Overall consumer spending remains below pre-pandemic levels because outlays on in-person services such as dentist’s visits, travel and sporting events haven’t fully rebounded. Monthly job gains have slowed in recent months. New applications for unemployment benefits, a proxy for layoffs, rose last week to the highest level since late August. And more workers are reporting their layoffs are permanent.
There are those predicting “shipageddon”. The combination of our reliance on online shopping during a pandemic and our eagerness for online shopping during the holidays. Expect delays and chaos as parcel companies already stretched thin also tackle a surge in holiday packages. UPS is on record saying they won’t take on additional volume customers.
Manufacturing slips
The Federal Reserve reports that manufacturing production slipped 0.3 percent in September from August, following 4 consecutive monthly gains. After plunging 20.8 percent over March and April, manufacturing output only recovered 16.8 percent before September. Compared with a year earlier, September output was down 5.7 percent.
The Fed said its index of industrial production, a measure of output at factories, mines and utilities, fell a seasonally adjusted 0.6 percent in September. Output remains 7.1 percent below where it was in February, before the pandemic hit.
The decline in industrial production shows a concern that the industrial recovery appears to be stalling with output well below its pre pandemic level. A recent increase in new coronavirus cases raises the possibility that factories could shut down once more.
Inventory levels remain low
The Census Bureau reported that the business inventory-to-sales ratio, which includes manufacturing, wholesale, and retail, remained very low in August after falling significantly from its peak in April. This data is lagged one month.
This is good for the trucking industry as thin inventories require restocking.
Employments slow recovery
New applications for unemployment benefits this month fell to the lowest levels since March, when the coronavirus pandemic derailed the economy, showing a sign of improvement for the U.S. labor market.
The Labor Department says the weekly initial claims for jobless benefits fell by 55,000 to a seasonally adjusted 787,000 in the week ended Oct. 17. Claims for the prior two weeks were revised lower, reflecting new data from California. The revised level of claims for the week ended Oct. 3, 767,000, was the lowest since the March 14 week, when less than 300,000 new claims were filed.
The Labor Department said California last week resumed reporting actual unemployment insurance claims data, which reduced the overall number of claims in October. The state had paused processing of jobless applications to address a backlog and step up fraud-prevention capabilities.
Current freight market
It’s a carrier’s market driven by a lack of truck and driver capacity. With about 4 loads available for every truck. Both large and small fleets have downsized since the start of the year with small fleets having removed 4 percent of capacity. One of the main reasons small fleets aren't adding capacity yet is that this is not a normal up-cycle. Sure, business may be good for the truckers and spot rates high, but they just look around their environment, and their kids aren't in school, and restaurants, gyms, and movie theaters are still closed in parts of the country.
Supply constraints that haven’t been seen before including the Drug & Alcohol Clearinghouse (DAC) that began in January 2020 now has over 34,000 drivers in the database with the large majority not even starting the return-to-duty process yet.
Adding to the driver problem, the new driver supply from months of driver training school closures followed by limited capacity upon re-opening of driver training schools.
If this isn’t enough, insurance costs are not going down. Insurance rates are climbing for large and small fleets across all layers of coverage. And even after the significant hikes seen in the last year or two, insurance companies are still not making adequate returns in their trucking portfolios, so expect further increases ahead, keeping a lid on capacity and driving costs higher.
Driver wages rising again. Both large and small fleets are having issues finding drivers. While not unusual, it is something that always must be addressed once the cycle turns. Carriers are pushing sign-on bonuses and significant pay increases.
Despite all of these challenges, trucking is providing one of the few bright spots to the flagging U.S. economy as tight capacity push contract and spot rates higher across vans, flatbeds and refrigerated trucks.
DAT Solutions said van spot load rates in September were up 28.8 percent compared with a year ago. They have continued to rise in October and now average $2.46 per mile, a 9-cent increase since the beginning of the month. Flatbed rates are up 9.9 percent year-over-year and have jumped a nickel in the past two weeks, also to $2.46 a mile. Refrigerated rates are up 19 percent year-over-year, and 3 cents in the past two weeks, to $2.60 per mile.
The spot market rates continue to surge past contract pricing as one can see from the chart. In the week ending October 18th, Load-to-truck ratios fell for the second week in a row, a signal that truckload capacity has loosened somewhat. Truckload rates remain high due to imbalanced networks and tight capacity on specific lanes and markets.
The trend in the average national rate per mile for dry vans is as follows.
- October $2.42
- September $2.37
- August $2.22
- July $2.04
Rail recovers thanks to intermodal loadings
Thanks to an increase in intermodal volume, U.S. freight rail traffic rose 1.9 percent to 520,452 carloads, containers and trailers for the week ending Oct. 10 compared with the same period in 2019, according to Association of American Railroads (AAR) data.
Total carloads for the week fell 5.2 percent to 230,964 units, while intermodal volume climbed 8.4 percent to 289,499 containers and trailers.
At Wagner Logistics
Thanks to the great team at Wagner, we are muscling our way through this challenging year. My thanks to the entire team handling new startups while not missing a beat with our existing customers. If we can do this in a pandemic, there is no limit to what is possible.
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.
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!