The recovery of the economy appears to be on track even with the surge in Delta variant Covid. Jobless claims fell slightly to 385,000 last week and the trade deficit widened to a record in June as the American economy drove strong demand for foreign-made goods reflected in durable goods sales.
The economy likely returned to its late-2019 size during the three months through June, helping to lift global output above its pre-pandemic level for the first time.
There is no end in sight for high transportation costs, so shippers are bracing for increases of 10-12 percent going into 2022.
ISM data shows services economy booming but delta poses threat
The ISM services index surges to 64.1 percent in July and hits a record high as restaurants, hotels and theme parks like Disney are still doing tons of business after the full reopening of the U.S. economy. They face a new challenge from the delta variant even as they scramble to cope with widespread labor and supply shortages.
Any reading above 50 percent signals expansion, and numbers above 60 percent are exceptional.
Companies that provide services such as dining, accommodations, entertainment and leisure finally saw a sense of normalcy in the spring and early summer as more people got vaccinated and coronavirus cases shrank. These businesses suffered greatly early in the pandemic.
Yet the sudden explosion in new delta cases is causing fresh strains on their business. Governments are reinstituting new mask requirements and some locales are requiring businesses to check customers for vaccination cards.
The good news is the virus is not as dangerous given the millions of vaccinated Americans and companies have learned how to cope with the pandemic. The delta variant probably won’t deal a severe blow to the economy unless caseloads go a lot higher.
Companies have offered higher pay, bonuses, or other benefits to try to attract more workers. Some companies have so much business they have to turn customers away because they are short-staffed. Millions of people who lost their jobs during the pandemic or left on their own still haven’t returned.
Getting supplies on time and at reasonable prices is another problem. Businesses have had to pay more for materials, and they’ve passed some of the cost on to customers.
The result is a steep increase in inflation this year. Rising prices pose another threat to the economy recovery because inflation erodes the buying power of U.S. households.
Durable goods orders up
While there are worries about the pace of recovery through the remainder of the year, for now, the data is coming in strong. Durable goods orders were up 0.8 percent in June and that is even better news than it would appear. These are the goods that last three years or more and include everything from industrial machinery, airplanes, appliances, and cars.
The automotive sector is a significant part of this data and by now everybody is well aware of the travails in the sector as the chip shortage drags on. Even with a reduced number of auto sales the durable numbers improved. There is a sense that many in industry have increased their demand for new machines and technology and the consumer is still buying things for the home.
Unclogging sweet home Chicago
Chicago has emerged as a new bottleneck in the global supply chain as rail, trucking and logistics operators struggle with a glut of imports from Asia reaching the Midwestern freight hub.
Union Pacific Corp. and BNSF Railway Co. have limited container shipments into their overstuffed freight-switching terminals in the Chicago area and some cargo owners and logistics companies have sought to divert shipments by truck or rail to other Midwestern transfer points, raising costs and adding new complications to already-snarled distribution networks.
The logjam is being driven by the rush of U.S. retailers and manufacturers to restock inventories as the economy reopens from Covid-19 lockdowns and consumers head back to stores and restaurants in greater numbers.
Container imports into Southern California’s neighboring ports of Los Angeles and Long Beach have surged at a record pace this year and delays have rippled across logistics operations, from the seaports to nearby warehouses and deeper inland to Chicago, where many thousands of containers are switched each month.
The two California ports handle about one-third of U.S. container imports, mostly from Asia. Seaborne imports to the ports for onward shipment to Chicago and the surrounding area rose 32 percent year-over-year in the second quarter and 18 percent compared with the same period in 2019.
The strains are being exacerbated by labor and equipment shortages across the shipping, trucking and rail industries.
U.S. Bank Freight Payment Index
This report is comprised of data on freight shipping volumes and spend on both a national and regional basis. The report’s data is based on the actual transaction payment date, highest-volume domestic freight modes of truckload and less-than-truckload and is seasonally- and calendar-adjusted. Its historical data goes back to 2010, with a base point of 100, and its index point for each subsequent quarter marks that quarter’s volume in relation to the preceding quarter. U.S. Bank Freight Payment processes more than $28.8 billion in global freight payments for U.S. Bank’s corporate and federal government clients.
The report’s shipments index value—at 122.7—was up 4.4 percent compared to the first quarter and up 6.8 percent annually. Freight spend—at 233.6—rose 10.1 percent compared to the first quarter, to a new record high, and was up 44.0 percent annually.
On a regional basis, the report stated that second quarter shipments were up on a sequential basis, with the West up 7.1 percent, Southwest up 6.5 percent, Midwest up 2.5 percent, Northeast up 1.5 percent, Southwest up 6.5 percent, and Southeast up 5.8 percent. Annually, shipments were up 12.1 percent out West, up 1.8 percent in the Southwest, down 2.1 percent in the Midwest, up 20.0 percent in the Southeast, and down 1.6 percent in the Northeast.
On the spending side, the report stated that second quarter spend saw gains on a sequential basis, with the West up 13.9 percent, Southwest up 9.8 percent, Midwest up 7.9 percent, Northeast up 14.6 percent, and Southeast up 9.0 percent. Annually, spend levels were up 51.5 percent out West, up 34.1 percent in the Southwest, up 32.1 percent in the Midwest, up 54.2 percent in the Southeast, and up 43.1 percent in the Northeast.
Current freight market
The truck market remains tight, and we are experiencing the new normal. Rates are up about 16 percent year-over-year in 2021 as combined contract and spot pricing. Segmented, contract rates are up 12 percent and spot rates are up 23 percent.
According to load board operator, DAT Solutions, the current national average rate per mile for dry vans is $2.77 so far in August. This is up from $2.73 in July and $2.67 in June. These rates include fuel.
Rail decelerates in July
U.S. railroads hauled 1,970,839 carloads and intermodal units in July, up 3.8 percent compared with volumes in July 2020, according to Association for American Railroads (AAR) data.
The rails logged 904,670 carloads last month, up 6.6 percent, and 1,066,169 containers and trailers, up 1.5 percent.
Traffic for the first seven months of 2021 totaled 6,907,195 carloads, up 9.1 percent from the same period last year; and 8,398,236 intermodal units, up 15.2 percent.
At Wagner Logistics
We completed a Christmas in July project at the end of last month, we worked to complete thousands of eCommerce orders daily. We wouldn’t have been able to perform in this flawless matter without our investment in robotics. Many thanks to everyone at Wagner who pitched in to make this possible.
As Wagner continues to work its many projects, 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!