Implications for the Global Supply Chain Buried in China’s PMI Report
RedStone Resource
May 1, 2024
Inside This Edition
Sentiment Waffling in the Wake of Strong Crosscurrents
Consumer sentiment is fluctuating, but just dipped to its lowest level since July of 2022. The index fell in April to 97 points; analysts were looking for a reading of at least 104, down just slightly from 104.7 in the prior month.
Midwest Storms to Activate Material Movement Activity
Load-to-Truck ratios are tighter than expected throughout some states in the Midwest. That is likely to get a bit tighter as rebuilding efforts in hard storm-hit Texas, Oklahoma, Kansas, Nebraska, Iowa, and other regions start the difficult process of rebuilding. This is officially the second most active April in history for severe storms and tornados.
DEA to Reclassify Marijuana, Faces Large Hurdles
Of the 200,000 CDL drivers that have been impacted by failed drug tests, more than 50% of those are marijuana failures. The DEA plans to move marijuana from a Schedule 1 drug to a Schedule III drug, much like some prescription drugs. It would not take the step of nationalizing the legalization of marijuana, but it would potentially make it a dynamic environment for transportation and what constitutes a drug failure.
Economic Briefing
Implications for the Global Supply Chain Buried in China’s PMI Report
The S&P Global PMI for China was released this week, and it showed an interesting observation about global supply chain activity. Although the headline Purchasing Manager’s Index showed mild expansion, manufacturers reported that new orders for goods from global sources increased at the fastest pace in three years. That is closely tied to the end of the global destocking trend that has been written much about in the RedStone briefings. Wholesalers, for instance, have depleted their inventories enough that every new order requires that they place new orders for products from sources around the world, and that pushes up demand for products. That, as opposed to, having ample inventory in warehouses and being able to simply pick from a local warehouse and continue to feed off those overstocks.
It also will tighten transportation capacity in the next 4-6 weeks, increase raw material and energy demand, and increase labor needs around the world. Although final PMI’s have not yet been released, there was improvement in many global markets last month, and that trend should continue as markets in Europe and South Asia build some momentum in the post Lunar New Year period. It also will increase competition for raw materials and energy and could push prices up with it.
Sentiment Waffling in the Wake of Strong Crosscurrents
Consumer sentiment is fluctuating, but just dipped to its lowest level since July of 2022. The index fell in April to 97 points; analysts were looking for a reading of at least 104, down just slightly from 104.7 in the prior month. The Conference Board said that consumers were beginning to become concerned about their jobs as companies started to trim expenses and start to dig-in for what they think could be a volatile three quarters ahead (getting to the other side of the election).
Older consumers are more discouraged than younger ones, and those in mid and higher income households were showing more decline in sentiment than those in lower income homes where their situation has been poor for some time. Those sentiments are from the University of Michigan barometer. But sentiment can often be very different than spending. Often, consumers will spend when depressed, and this outlook on sentiment does not necessarily mean that peak season will be weaker, or retail sales will reverse from current strong levels. The bottom line is that the economic data showing growth is not in lockstep with consumer sentiment which is weak.
Transportation Briefing
Midwest Storms to Activate Material Movement Activity
Load-to-Truck ratios are tighter than expected throughout some states in the Midwest. That is likely to get a bit tighter as rebuilding efforts in hard storm-hit Texas, Oklahoma, Kansas, Nebraska, Iowa, and other regions start the difficult process of rebuilding. This is officially the second most active April in history for severe storms and tornados. Millions of dollars in new damages were experienced on April 28th and 29th, estimates will still be weeks from being official.
But the process of getting materials for rebuilding and construction, emergency housing, and relief efforts are going to boost supply chain activity in the region. At the time of writing, another busy week of severe storms, flooding, and possible tornados was setting up. This is also likely to be one of the more active hurricane seasons in history. In all, this active weather pattern will affect the transportation and logistics system in many ways, tightening capacity, creating challenging workarounds, and increasing demand for products sometimes in regions of the country not accustomed to this active activity (some small cities in Nebraska, Iowa, and Oklahoma were almost completely wiped clean).
DEA to Reclassify Marijuana, Faces Large Hurdles
Of the 200,000 CDL drivers that have been impacted by failed drug tests, more than 50% of those are marijuana failures. The DEA plans to move marijuana from a Schedule 1 drug to a Schedule III drug, much like some prescription drugs. It would not take the step of nationalizing the legalization of marijuana, but it would potentially make it a dynamic environment for transportation and what constitutes a drug failure.
To be clear, this is an intention by the DEA to attempt to reclassify it. It makes an interesting talking point heading into an election, but it must pass a public comment period, make it off the DOT banned substance list, and it would have to clear some hurdles elsewhere in addition to legal challenges. Then, it would have to pass private company regulations, some of which are much stronger than public standards. Insurance firms would also tend to give companies with tighter standards better rates – and that may keep the industry away from acting on reclassification.
In short, just because this is going to grab a lot of headlines over the next six months, it will likely not make a difference in changing truck capacity or put more drivers back behind the wheel.
