Transportation Updates
The Wall Street Journal: Sept 6th
East and Gulf Coast dockworkers plan to strike as their labor contract expires on September 30, 2024. The International Longshoremen’s Association seeks a 77% wage increase, rejecting a nearly 40% offer. A strike would impact major US ports, causing supply chain disruptions and affecting retailers and manufacturers. Global shipping could experience delays, with significant backlogs even from a short strike. The Biden administration may intervene, but union threats include slowing operations if forced back to work.
Journal of Commerce: Sept 5Th
As demand increases, the US truckload spot market is tightening in key areas, such as Allentown, Charlotte, and Atlanta. Despite rising volumes, overall truckload demand remains soft, with a long-term flat outlook toward 2025. Spot rates have seen minor increases but are still below 2023 levels, with dry-van rates averaging $2.01 per mile. Manufacturing slowdown is a critical factor in declining truckload demand, with unsold inventory piling up in warehouses. Small trucking firms with lower operating costs are re-entering the market, stabilizing pricing amid fluctuating capacity.
XPO and Old Dominion reported weaker August volumes, with XPO down 4.6% year-over-year and Old Dominion down 6.1%. Despite soft demand, XPO expects year-over-year margin improvement due to effective cost management and strong yield growth. Old Dominion's revenue declined 5.2% in August, which it attributes to lower fuel surcharge revenue and economic softness. Saia was the outlier, reporting an 8.2% increase in tonnage in August, but with a shift toward lighter freight, impacting margins. Tougher year-over-year comparisons are making volume and margin growth challenging for LTL carriers.
The average truckload driver's pay has increased by 10% over the past two years, reaching a median of $76,420 in 2023. LTL linehaul drivers earned a median of $94,525, while local LTL drivers made $80,680 annually. Fleets shifted their focus from recruitment to retention, offering higher tenure bonuses instead of sign-on incentives. Leased independent contractors for truckload carriers earned a median of $186,016 in 2023. Experienced drivers saw the largest pay raises, with leased operators benefiting from driving more miles and securing better rates.
Economic Updates
Institute for Supply Management: Sept
The Manufacturing PMI® for August 2024 was 47.2%, indicating contraction for the fifth consecutive month. New orders, production, and employment continue to decline, reflecting weak demand and economic uncertainty. Prices increased, with the index rising to 54%, marking eight consecutive months of rising raw material costs. Supplier deliveries slowed slightly, with the index at 50.5%, while inventories expanded, signaling a supply-demand mismatch. The manufacturing outlook remains subdued due to capital investment hesitation and federal monetary policy uncertainties.
Investors focus on inflation data to assess if the Fed will cut rates by 25 or 50 basis points. The August consumer price index (CPI) report could determine the size of the expected rate cut on September 18. A half-percentage-point cut might signal increased recession risk, raising concerns about an economic slowdown. Treasury yields and market reactions reflect uncertainty, with financial participants closely watching upcoming Fed announcements. Inflation is projected to decline, with Barclays and BofA predicting an annual headline CPI of 2.5%-2.6%.
The Wall Street Journal: Sept 6th
US job growth in August increased to 142,000, while June and July figures were revised down, indicating weak summer hiring. The Fed is likely to cut interest rates this month, but the size of the cut (0.25 or 0.50 points) remains uncertain. The unemployment rate dipped to 4.2%, signaling a softening but stable labor market. Wall Street expects multiple rate cuts this year, with the September decision pivotal for broader economic strategy. August’s job gains were primarily in construction and healthcare, with year-over-year wage growth rising to 3.8%.
US job openings dropped to 7.7 million in July, the lowest level since January 2021, reflecting a softer labor market. Job postings have steadily declined from a peak of 12 million in 2022, indicating fewer industries are hiring. The number of job openings per unemployed worker is now 1.1, down from a post-pandemic high of 2.0. The Fed is expected to cut interest rates soon, as rising unemployment and slowing inflation reduce pressure. Despite weaker demand, layoffs remain low as companies retain workers amid a labor shortage.
Logistics Managers Index: Sept 3rd
The August 2024 Logistics Manager's Index (LMI) remained nearly steady at 56.4, showing continued steady logistics expansion. Inventory levels rose 6.1 points to 55.7, ending a three-month contraction and reflecting traditional seasonal patterns. Transportation capacity expanded by 5.8 points, suggesting some sidelined capacity re-entering the market as demand increases. Warehousing prices increased to 63.8, driven mainly by downstream firms, despite rising warehousing capacity. Logistics professionals predict future growth, with an expected LMI of 62.4 over the next 12 months, reflecting optimism in the supply chain.
Crude oil prices rose, with WTI at $68.71 (+1.44 %) and Brent at $71.84 (+1.01 %). US refiners, like Marathon Petroleum and Phillips 66, are cutting production due to low margins and weaker demand. A global refining capacity shortage is predicted for 2025, potentially benefiting US refiners with competitive margins. US refining capacity could drop by 700,000 barrels per day as facilities face closures. Compressed refining margins may lead to increased refinery maintenance this fall, impacting crude oil balances.
The Wall Street Journal: Sept 4th
The Biden administration, citing national security concerns, may block US Steel's $14 billion sale to Nippon Steel. US Steel CEO warns of plant closures if the deal is blocked, jeopardizing jobs and investment in older mills. Nippon Steel pledged $2.7 billion for mill upgrades, but opposition from politicians and unions remains strong. The United Steelworkers union opposes the deal, fearing it would harm US Steel’s domestic operations and favor Japan. US Steel shares dropped 17%, with further impact expected if the deal is officially blocked.
Specific Articles
ArcBest's asset-based unit saw tonnage decline 10% year-over-year in August, following a 12.5% drop in July. Revenue per hundredweight rose 4% in August, down from a 15.4% increase in July, reflecting lower shipment weights. The company will implement a 5.9% general rate increase, which aligns with last year's rise but was implemented earlier. ArcBest anticipates a flat to slightly worse operating ratio in Q3, citing weak manufacturing, lower shipment weights, and increased wages. Its asset-light unit reported revenue declines, and it is expected to experience a more considerable operating loss in Q3 due to reduced truckload volumes.
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