As we enter the Memorial Day weekend, I wish you all a safe and happy holiday. Please pause to remember those who our nation has lost in service to this great country.
We are wrapping up May with continued economic momentum as the country slowly returns to normalcy after the pandemic. Shortages will continue to exist throughout the year as inventories remain lean and order lead times are extended.
The mother of all shortages is in transportation capacity where ocean rates have accelerated with container rates increasing almost four-fold. Air freight rates have doubled and as explained in past blogs, the truckload market has exploded with some lanes charging over four bucks per mile. Even FedEx has admitted their network is undersized to meet the current level of parcel shipping.
Shift coming in fed strategy?
As the economy has heated up and inflation has returned, the Fed is considering the end of zero interest rates. The central banks have a variety of tools that can be employed to manage the monetary policies of a country in addition to the interest rate tool.
The intervention in the bond market is a key one. The Fed has been buying bonds for
several years as a means by which to keep borrowing costs down - $80 billion in Treasuries and another $40 billion in mortgage-backed securities every month. It has been this engagement in the bond market that has had the biggest impact on mortgage rates – more than the level of the Fed Funds rate.
Labor shortages persist
The issue of labor shortage has been vexing the US and most other advanced economies for many years, but the issue has become far more serious in the last year or so.
Prepare for wage inflation as companies are in dire need of labor and need to get workers to re-engage in the work force.
These temporary governmental programs extended over and over again, and millions of workers elected to take the aid and delay returning to work. Today, there are close to 8 million job openings and few applicants to take the jobs. School closures keeping parents’ home, generous government unemployment benefits, and vaccine fear are keeping many at home. Not to mention the aging of the work force and retirements.
Jobless Claims Extend Decline
Initial unemployment claims for regular state programs, a proxy for layoffs, fell last week to 406,000 from 444,000 the prior week, the Labor Department said Thursday. That level represents the lowest levels of claims since the coronavirus pandemic’s onset last year and the fourth consecutive week claims have reached a new pandemic low.
A separate report from the Commerce Department showed orders for cars, appliances and other long-lasting, or “durable,” goods fell a seasonally adjusted 1.3 percent in April from March—the first monthly decline in demand for such products in a year. The decline was concentrated in the automotive sector, where a semiconductor shortage has caused disruptions, and the defense industry, which tends to be very volatile. Shipments of motor vehicles and parts fell sharply as well, while shipments of defense capital goods rose.
Home demand surge, low inventory = high prices
Prices for new and previously owned U.S. homes are surging, as strong demand continues to overwhelm the housing supply.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 13.2 percent in the year that ended in March, up from a 12 percent annual rate the prior month. March marked the highest annual rate of price growth since December 2005.
Also, the Commerce Department said the median price of a new home sold in April was $372,400, up 20.1 percent from a year earlier, the strongest annual gain since 1988.
The median sales price for existing homes rose 19.1 percent in April to $341,600, the National Association of Realtors said last week.
Driver shortage and screening
The rate of positive truck driver drug tests recorded in the Drug & Alcohol Clearinghouse in the first three months of this year remains on pace with last year’s, and the number of drivers who have yet to enroll in return-to-duty programs remains persistently low.
As of April 1, there were 14,303 driver positive drug tests recorded this year, compared with 55,955 failures during all of 2020. That’s an average of 4,663 failures a month during 2020, and 4,767 a month for the first three months of 2021.
Drivers who fail their drug tests must enroll in a return-to-work program and pass a drug test before they are permitted to get back behind the wheel.
Of 64,846 drivers with violations as of April 1, only 10,609 have passed a return-to-duty drug test, according to the April 1 FMCSA Clearinghouse report. A total of 54,237 drivers remain on prohibited status, and 41,029 have not yet started the return-to-work process.
ATA Truck Tonnage Index Decreased 0.3 percent in April
American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 0.3 percent in April after increasing 2.3 percent in March. In April, the index equaled 114.7 (2015=100) compared with 115.1 in March.
After a revised increase in March of 2.3 percent, the April index declined just slightly. The outlook is solid for tonnage going forward as the country approaches pre-pandemic levels of activity, with strong economic growth in key areas for trucking – including retail, home construction and even manufacturing.
ATA calculates the tonnage index based on surveys from its membership and has been doing so since the 1970s. This is a preliminary figure and subject to change in the final report issued around the 5th day of each month. The report includes month-to-month and year-over-year results, relevant economic comparisons, and key financial indicators.
Now its pallets?
With all the shortages I had not expected pallets to be on the list.
A lack of pallet availability and rising pallet prices add to the stress of already squeezed supply chains, the United Fresh Produce Association said in an emailed notice.
Pallet costs are up 400 percent, according to the association, due to several factors, including high demand and rising lumber costs.
Repositioning the pallets is also a challenge as trucking capacity is strained. Not enough trucks and drivers are available to move the pallets from one location to another, the group said.
Demand for pallets stems from retailers and grocers restocking their distribution and fulfillment centers, as consumers continue to spend on goods rather than services. Many firms have also built-up buffer inventory, as a hedge against the stockouts that plagued CPG and retail supply chains last year.
Year-to-date lumber prices are up 52 percent.
Current truckload market
DAT Solutions tells us that in the week ending May 23rd, demand cooled a little from the freight market last week following a second consecutive week-over-week drop in spot market volumes. Available capacity eased also, with 24 percent more trucks posts on the DAT One network. As a result, load-to-truck ratios declined steeply for each trailer type.
The national average spot rate per mile is currently $2.68 up nine cents from April and fuel is up to a national average of $3.25 per gallon.
Rail use surges
For the week ending May 15, total U.S. rail traffic was 533,872 carloads and intermodal units, up 28.3 percent compared with the same week last year, according to Association of American Railroads data.
Total carloads for the week were up 31.6 percent, while U.S. intermodal volume was up 25.6 percent.
All 10 carload commodity groups tracked by AAR on a weekly basis posted a year-over-year (YOY) increase. They included coal, up 22,374 carloads, to 68,327; motor vehicles and parts, up 9,598 carloads, to 12,466; and metallic ores and metals, up 9,592 carloads, to 23,686.
At Wagner Logistics
I will end as I began, wishing all of you a safe and happy Memorial Day holiday weekend. Enjoy your time with family and friends!
If you are a customer of Wagner, I thank you for the trust you place in our company to care for your business. We exist to service your supply chain needs.
As Wagner continues to scale its operations, we would love to work with you. If you are issuing a transportation RFP or have a distribution/fulfillment project, let’s schedule a call.
We are celebrating our 75th year of history of service to our customers and would really appreciate 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!