John’s Blog

3-11-11

Dear Friends,

I am sorry about the tardiness of this weeks report as I attended the International Warehouse Logistics Association’s annual conference. Now it is catch up time!

Diesel and gas pricing continues to surge as the Middle East boils driving oil speculation. The jump in diesel process was the largest in two years when it moved up fourteen cents to $3.716 per gallon last week.

Just as increased costs of gas, food, and apparel weigh heavy on the US consumer, motor carriers are feeling a similar squeeze. With everything from fuel to tires and equipment replacement costs, the motor carrier industry is suffering from rising cost pressure. Layer onto this the reduction in the driver pool caused by the CSA safety regulations and driver pay is sure to rise as carriers compete for talent.

It looks like the manufacturing segment will continue to grow adding to the volume of shipments for carriers of all kinds. The Institute for Supply Management’s factory index for February came in at a 61.4 reading. This was up from 60.8 in January for the highest level in 7 years and the 6^th straight monthly improvement.

With employment picking up manufacturers are encouraged but the rising cost of materials is tempering optimism.

The Labor Department said that US worker productivity was up 2.6% in the last quarter of 2010 matching the estimate. This follows a 2.3% rise in the 3^rd quarter. For the year of 2010, productivity, measuring the output or production of an employee in an hour of work, came in at 3.9%. This is the largest increase since 2002.

Why focus on productivity? It is a contributor to inflation if productivity slows and labor costs increase. So far we are seeing gains in production while the labor costs are moderate so workers are doing a little more work at a little less cost holding labor inflation in check.

The Federal Reserve Bank said the US economy is expanding at a moderate pace so far this year and that transportation services are in demand in the banking districts of Atlanta, Cleveland, and Kansas City. The “beige book” report also expressed concern over the rising cost of fuel and its effect on the economy.

At Wagner we agree with these assessments as we see carrier capacity tighten and rates on the rise. Between all of the rising cost factors described earlier, we could see some truckload rates increase between 5-10% this year. If YRC fails to make it expect LTL rates to jump as well.

Meanwhile we continue to see good volume and shipment activity across the Wagner facility network which will result in a strong first quarter. Please let me know if we may help in any of your weak spots in distribution, packaging or transportation.

Have a great week!

John Wagner Jr