John’s Blog 11-8-11

Dear Friends,

The U.S. economy appears to be holding its own in the slow but steady march to recovery, shrugging off the Greek drama in the Eurozone and the rumbles about Italian bond problems. Here is what is going right:

Weekly applications for unemployment benefits fell to a seasonally adjusted 390,000 for the week ending Nov. 5, according to the Labor Department, signaling fewer job layoffs, while the four-week average of new claims fell to the lowest level since April. Meanwhile, productivity gains continued and the GDP grew 2.5% in the 3^rd quarter on good export numbers.

Employment continues to lag, but at least we are moving in the right direction. The Labor Department also reported that 80,000 jobs were added in October, causing the unemployment rate to drop very slightly to 9 percent from 9.1 percent. The ranks of the officially unemployed now stand at 13.9 million people. The unofficial estimate of unemployed/underemployed is about 25 million. We really need to add 300,000 jobs a month to make a serious dent in unemployment, so while this is a very small improvement, I will take small growth over a decline.

Now, we wait and see how the holiday retail sales develop. Thin inventories and early discounting will make for an interesting season.

In the world of logistical services, steamship lines are taking a serious hit as trans-pacific rates hit a 21-month low. The spot rate for a 40’ equivalent container from Hong Kong to Los Angeles dropped below $1,500 to $1,486. Since the end of August the spot rate index has fallen 20%, causing the steamship lines to cut service and reduce ships. K Line, MOL, NYK, NOL, and others have lost hundreds of millions of dollars so far this year.

LTL trucking companies have recovered somewhat due to better volume and price increases that have stuck. UPS reported a 15% increase in revenue in its LTL unit and a 3^rd quarter profit of $1.04 billion in net profit. ODFL likewise reported a 25% increase in LTL freight revenue with net profit up 58% year over year to $38.6 million in the same quarter.

Also impacting the over-the-road trucking business is the pending ruling on the hours of service regulations by the FMCSA . The next status report is due to be released on November 28^th. It is hard for carriers to plan not knowing how many hours their drivers are going to be allowed to drive each day. A reduction in the HOS will result in an even deeper loss of truckload capacity.

The Intermodal Association of North America’s quarterly Intermodal Market Trends and Statistics report indicates domestic container shipments bounced up 9% year over year.  Trailer volume dropped a little, down 0.8% against the previous year. International container volume fell 2.6%, reflecting weak international container traffic.

There was a good article in Industry Week magazine about how to optimize your supply chain. One of the key points was to focus on one’s core strengths and outsource the rest.  The trend for many years has been for companies to do just that, outsourcing transportation and distribution center operations in particular.

Companies heavily invested in real estate, or with long-term leases to manage, can still benefit from outsourcing opportunities. At Wagner, we have several partnership arrangements with clients in which we have been brought in to manage company-owned or leased distribution center facilities. These partnerships leverage our experience, bench strength, and perhaps most importantly, our technology to bring maximum efficiency to company-owned space. In our experience, the key to success for these partnerships is a collaborative approach with clearly expressed goals so everyone knows what success looks like.

Wagner is currently engaged in several of these operations, from half-million-square-foot facilities down to 100,000-square-foot operations. Our clients appreciate the value Wagner brings to the table with our RedPrairie DLX suite of software and our deep experience in its use and deployment.

Should you be planning any changes in your distribution center network in 2012 please reach out to Wagner for a conversation. Have a challenge? Bring it!

Have a great day!

John Wagner Jr.