John’s Blog 8-18-11

Dear Friends,

What are we to make of the conflicting economic signals we’re all seeing?

Stock prices, interest rates and other numbers that reflect the world of high finance are not looking healthy. But when it comes to the buying and selling of basic consumer goods – and the logistics of putting those goods on store shelves or in the hands of consumers – growth and progress are continuing.

It seems that while the wizards of Wall Street continue to wring their hands and worry, Main Street businesses and customers are moving on with their lives.

For example: Retail sales continue to rise. The Commerce Department reports that retail sales bumped up 0.5% in July while revising the June retail sales up to 0.3% (originally reported at 0.1%). Increases were reported in categories such as gas stations, on-line retailers, electronics, appliances, apparel, and furniture. Auto sales were up 0.4%.

Overall, retail sales had its biggest jump since early 2006. Retailers are reporting strong earnings, having figured out how to make money in a slow economy. Target and Home Depot are particularly impressive.

Unemployment remains stubbornly high, but at least it is trending in the right direction. The four-week moving average of initial jobless claims fell to 405,000 from 408,250, showing a slowly improving trend. The Labor Department said claims were at a four-month low.

On the logistics front, movement of goods continues to grow, although at a slower pace. Truckload traffic has slowed over the last few weeks according to the Morgan Stanley proprietary truckload index.

Still, the DOT reported that its June Freight Transportation Services Index came in at 108.3, which was the second-highest reading since August of 2008. The baseline for the index is 100 in the year 2000.  The TSI was up 2.6% from May. The index’s peak reading was 111.9 set in June 2006.

The Intermodal Association of North America said intermodal volume went up by 6.5% in the second quarter. Domestic container volume went up 9% to 1.23 million units and trailer-on-flatcar volume increased 4.6% to 425,000 units. International container traffic increased 5.4% to 1.88 million units in the quarter. IANA contributes the rise in domestic traffic to the high cost of diesel fuel diverting traffic from truck to rail.

Fuel prices are driven in large part by demand, and as demand for shipping and demand for fuel both continue to rise, shipping costs are moving upward as well.

Shippers have been stung by higher LTL pricing this summer. Average LTL prices jumped 10.4% in July year over year. Trucking costs excluding labor are up over 8% in 2011, so expect pricing to keep up with this pace.

FedEx Freight announced they are taking a general rate increase of 6.75% in September and they will also be adjusting minimums and accessorial charges. This increase will be applied on traffic within and between the US and Canada.

The pricing trend for rail shows intermodal transaction prices ending June with a 7.6% gain year over year. This is 11 straight months of increases. Rail carload traffic pricing was also up, showing a 6.4% rise year over year in June.

Of course, fuel is a global commodity, and prices are affected not just by domestic demand by shippers but by the overall global economy as well. The Department of Energy forecasts lower diesel fuel costs for the rest of 2011, at  $3.83 per gallon. While this is good for shipping costs, it is one more indicator of a slowing economy, as fuel cost forecasts tend to be a barometer of expected activity.

That’s not the only worrisome number we’ve seen. The Census Bureau reported that the trade deficit increased to the worst level since October 2008 in June. Imports dropped 0.8% and exports fell 2.3% increasing the deficit. In measuring goods the deficit was $67.2 billion. We have a services trade surplus of $14.5 billion. And of course, the Dow Jones Industrial Average and the S&P 500 continue to fluctuate wildly from day to day, if not from hour to hour.

Nevertheless, at Wagner we are in the full swing of holiday activity. We have several projects underway building point of purchase displays, and we’re enjoying increased fulfillment volumes. Transportation seems to be holding up well and occupancy in our distribution centers is good. 

It’s the Main Street economy that drives our business, and we’ve seen no sign of it slowing down.

This is the time of year when we begin our strategic planning and budgeting for 2012.  We are eager to grow and welcome the opportunity to solve your service problems. We particularly enjoy taking on the tough, unusual challenges. The nice part about being a mid-sized 3PL is we can turn on a dime with a minimum of bureaucracy.

Don’t hesitate to reach out and make a suggestion, comment or criticism, as feedback is what helps us to shape our service products for the future. Have a project or idea? Bring it!

Have a great day!

John Wagner Jr