Hot Durable Goods Sectors Prop Up Freight Sectors for Big-Ticket Items
RedStone Resource
June 15, 2023
Inside This Edition
Global Supply Chain Pressures Index Declines Further in May
The New York Federal Reserve and AMEC’s Global Supply Chain Pressures Index hit its lowest reading in the history of the series dating back to before 1998. At a reading of -1.7 (which indicates the standard deviation from a historically “normal” supply chain environment), it was down from -1.35 last month.
Hot Durable Goods Sectors Prop Up Freight Sectors for Big-Ticket Items
Despite some freight sectors slowing, the durable goods category continues to bring growth and supply chain challenges. New orders for durable goods (which is a forward-looking indicator for freight demand) grew $3.1 billion (1.1% M/M through April).
Re-Shoring Data Shows Strong Resilience in Growing US Supply Chain Capacity
Construction in manufacturing facilities has hit an all-time high with more than $189 billion in annualized spending over the past 12 months. This is 103% higher than the trend a year ago and more than $120 billion above the decade-long average prior to the pandemic. Nearly 90% of executives in various surveys report that they anticipate reshoring a portion of their global sourcing over the next 10 years.
ECONOMIC BRIEFING
Producer Prices Show Freight Price Deceleration Continued in May
There are questions in the marketplace about a bottoming of the current economic cycle for transportation. There was some evidence of this in the latest Producer Price Index report released this month, and other industry metrics appear to show some mild seasonality beginning to kick-in. The Producer Price Index for TL, LTL, and Freight Rail continued to show a trend that looks more like a “return to normal” across the industry. Truckload prices according to the PPI were down 1.8% M/M and were 22.9% lower from a year ago. But they were still 17.4% higher vs. May of 2019 prior to the pandemic.
Long-distance LTL was flat month-over-month but was 9.4% lower vs. May of last year. And like the truckload sector, it was still 20.2% higher vs. May of 2019.
Freight rail was down 0.9% month-over-month through May but was still up 0.5% from a year ago at this time. The freight rail sector did not take aggressive price increases as was seen in other modes and was 16% higher than it was in May of 2019.
The air cargo PPI was down 0.3% month-over-month and was down 7.2% vs. last year at this time. It was just 7.6% higher than May of 2019 and prior to the pandemic.
Global Supply Chain Pressures Index Declines Further in May
The New York Federal Reserve and AMEC’s Global Supply Chain Pressures Index hit its lowest reading in the history of the series dating back to before 1998. At a reading of -1.7 (which indicates the standard deviation from a historically “normal” supply chain environment), it was down from -1.35 last month. The index measures the amount of volatility in the global supply chain and a low reading like this signals that capacity is more readily available, prices are generally softer, transit times and fulfillment activity is more predictable, etc.
The report suggested that better conditions in Great Britain primarily in the reductions of backlogs of shipments and improvements in Taiwan delivery times (in addition to the other 27 variables in the index). Pressures were still being experienced in the broader Euro area (specifically those impacted by the Ukraine War) and some backlogs of raw materials were still present. Without those disruptions, the global supply chain index would have been even lower.
The report suggests that all geographic regions in the index were below their historical averages. That generally will improve capacity availability across all regions and modes, something that other measures seem to be corroborating at this time.
TRANSPORTATION BRIEFING
Hot Durable Goods Sectors Prop Up Freight Sectors for Big-Ticket Items
Despite some freight sectors slowing, the durable goods category continues to bring growth and supply chain challenges. New orders for durable goods (which is a forward-looking indicator for freight demand) grew $3.1 billion (1.1% M/M through April). This is keeping the supply chains for the thousands of suppliers that feed these product categories hopping, and some supply chain congestion continued for some sectors.
New orders in the computer and electronics, automotive, electrical equipment and appliances, and the defense sector were showing unseasonal levels of demand. Although durable goods only account for roughly 9% of US GDP, the supply chains for those products are complex enough that they create demand across all modes of transportation, connecting suppliers up and down the supply chain. But some supply chains are still facing backlogs and challenges in getting products, which is backing up entire assembly lines.
Aerospace, automotive, non-residential construction, and parts of the residential construction sectors would have more robust activity if backlogs of certain parts were not hampering production and output. If some of these chronically backordered products experience supplies improving, watch for surprises in tightening capacity across the transportation sector during this year’s peak season.
Re-Shoring Data Shows Strong Resilience in Growing US Supply Chain Capacity
Construction in manufacturing facilities has hit an all-time high with more than $189 billion in annualized spending over the past 12 months. This is 103% higher than the trend a year ago and more than $120 billion above the decade-long average prior to the pandemic. Nearly 90% of executives in various surveys report that they anticipate reshoring a portion of their global sourcing over the next 10 years.
Other markets that are picking up a significant volume of source shifting is Mexico and India. Both have manufacturing sectors that are outpacing recent global slowing trends and both countries were among the faster growing global markets for manufacturing over the past 45 days.
Manufacturing in the US is being located across the board, but regions up and down the I35 corridor, Ohio Valley, and Tennessee Valley regions are picking up a significant portion. Better distribution systems, connectivity to major rail and highway systems, lower cost of living, access to affordable energy, stable talent pools, and good linkages to cross-border distribution are among the factors driving location. How this effects total US distribution and whether it increases or decreases freight volumes in some US lanes is yet to be seen. But if this trend of reshoring activity continues over the next 3-4 years at this or even 50% of the current pace, it will begin to create unexpected but permanent increases in volumes in some regions.
