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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


SouthPoint

11/19/2015


Southeastern Transportation: Tapping the Brakes?

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The Atlanta Fed's Trade and Transportation Advisory Council met on October 6 at the Jacksonville Branch to discuss economic conditions in the industry. According to a majority of council members, transportation activity has been affected by slowing of exports resulting from tepid global demand, a stronger dollar, and increased inventory levels. Although the European economy appeared to be doing better, the slowdown in China was having an impact on every key global market.

Council members reported seeing growth in inventory-to-sales, which reduced customers' needs for transportation services, and most members perceived the extra inventory as a result of slower sales rather than from overpurchasing or hedging against future price increases.

Employment and labor markets pose continuing challenges
Finding appropriate labor in logistics at all levels continues to be a challenge. Issues negatively affecting recruiting include failing substance abuse tests, experience and education gaps, and difficulty attracting talented youth into the sector. As these issues continue, domestic trucker and qualified mechanic availability remains a concern.

Costs, prices paint a mixed picture
Driver shortages continued to plague the industry, and persistent increases in driver pay have not alleviated the problem. Demand for talent has been pushing wages up for professional levels as well. However, some reported different types of pressure that are causing turnover and recruitment challenges. For example, younger workers expect flexibility, access to technology, and scheduling autonomy, conditions that are difficult to accommodate in businesses that require a specific work schedule.

Declines in fuel costs were reportedly keeping overall nonlabor costs steady by offsetting increases in other input costs. Increases in insurance premiums and an uptick in equipment costs were examples of upward pressure on costs. Congestion at West Coast ports was cited as a cause for an increase in nonproductive operating costs.

Regarding pricing power, rail continued to see strong pricing power as capacity remains tight across other modes of transportation. For others, the softening of the economy has dampened the ability to raise prices. Therefore, pricing power is limited, and increases engender considerable customer pushback. The majority of council members, however, expect to be able to increase rates one year out and beyond, though opportunities could become limited if the economy does not continue to improve and fuel prices do not rebound.

International trade plays a regional role
The appreciation of the dollar has continued to exert downward pressure on exports. The economic slowdown in China, the larger Asia-Pacific region, and Latin America (specifically, the recession in Brazil and ongoing economic turmoil in Venezuela) is substantially affecting air trade. However, these markets have not had a material impact on some transportation businesses such as rail since exports' direct exposure to the Chinese economy is limited.

Over the horizon...
Although the overall message from this council meeting was one of decelerating activity, the majority of council members anticipate the same level of growth during the next three to six months, and they expect the same or higher level of activity during the next two to three years.

Topping the list of challenges for the industry down the road are the lack of drivers, finding and retaining quality/qualified labor, and a tighter regulatory environment, which may exacerbate the driver shortage in the coming years. Council members said long-term strategic planning and capital investments in ports and highway infrastructure will be necessary to continue to meet demand.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

November 19, 2015 in Employment, Florida, Southeast, Trade, Transportation | Permalink

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05/12/2015


Trials and Tribulations in Transportation

Members of the Atlanta Fed's Trade and Transportation Advisory Council convened on April 7 at the Atlanta Fed's Jacksonville Branch to discuss the Southeast latest developments in this sector.

Just over half of council members reported an expansion of overall activity compared with the same period last year. A few members reported reduced freight activity, citing the primary causes as both a decrease in movement of materials related to oil exploration and the appreciation of the U.S. dollar against the euro. Members noted that severe winter weather affected shipments for railroads and truckers primarily throughout the north and northeast United States, and the West Coast ports situation disrupted supply chains across the country. East Coast port volumes are now over capacity as shippers began diverting cargo away from the West Coast. Council members anticipate that it will be August before the backlog of port cargo will be cleared, a situation that may adversely affect the peak fall shipping season. However, members believed that many of the structural problems of the West Coast ports will remain in place long after the labor situation is resolved.

Employment, wage picture largely mixed
A majority of council members reported that employment levels were flat or slightly higher compared with this time last year, and two-thirds of council members expect higher workforce levels this time next year.

Truck driver shortages remained an almost universal concern for the industry. Technicians (formerly referred to as mechanics) are also in demand and harder to find as new federal emission requirements demand workers with more specialized skills.

Responses regarding wage pressures were mixed. Trucking companies continued to raise driver pay, as finding willing and qualified truck drivers remained difficult. Outside of specific areas of expertise, such as railroad engineers and technicians, employers were easily filling nondriver positions without increasing starting salaries. Logistics firms, however, perceived the labor market as tightening and reported more frequent voluntary turnover with "higher pay" being cited as a reason for leaving. Additionally, candidates were receiving multiple offers and enhanced benefits packages.

Nonlabor input costs and prices
A number of council members reported seeing some upward cost pressures in nonlabor inputs such as commercial insurance, equipment, locomotives and leases, ocean freight rates, and domestic trucking rates. The sharp decline in fuel costs, however, has helped keep overall costs down.

Almost all council members reported better pricing power since the last meeting in October 2014. Members indicated that some customers understand market forces and work to negotiate the best deal possible with their current carrier, but others shop around for the lowest cost. All council members anticipate greater ability to raise prices one year out and beyond, citing constrained capacity and expected higher commodity prices as the principal reasons, along with seeking to recover increased regulatory compliance costs.

International trade rises modestly
Council members with insight into international trade indicated modest growth in imports, related to the strong U.S. dollar against the euro and other foreign currencies and an improved domestic economy. Regions expected to drive demand for U.S. exports are South America and Asia as those economies continue to expand consumer buying power. Near-shoring is expected to become a bigger trend, and the automotive sector's investments in Mexico will drive greater cross-border growth between the United States and Mexico.

Outlook
Two-thirds of council members expect higher growth in the short term. Over the next two to three years, three-quarters of members expect higher growth. When asked about the most challenging issues facing the transportation sector, responses varied by sub-industry. Driver shortages continued to be the headliner, along with regulatory issues, which continued to drive capacity out of the market and significantly push up operations costs. Broadly, the supply chain has been adversely affected by infrastructure constraints, and this impact could persist: the United States has a great need for well-planned and properly funded hard infrastructure investment in ports and road networks to get goods to market.

The council meets again in October, and SouthPoint will report whether the summer months reflect improving conditions for the movement of goods.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

May 12, 2015 in Florida, Southeast, Trade, Transportation | Permalink

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10/27/2014


Southeastern Transportation Continues Rolling

Members of the Atlanta Fed’s Trade and Transportation Advisory Council met in Atlanta on October 8 to discuss the latest updates on and insights into the industry. Most council members reported expansion continuing into the fourth quarter. Year over year, demand was greater across the majority of industries represented. In rail, shipments of frac sand, which is used in the hydraulic-fracturing process (commonly referred to as fracking) to produce petroleum products such as oil, natural gas and natural gas liquids from rock, and crude oil were up substantially, and intermodal volumes were steadily rising as a result of trucking capacity constraints. Ocean shippers reported a shift in the modes of movement of commodities, which were historically shipped in bulk but are now shipped in containers, causing a shortage of containers for traditional use. Demand in the flatbed trucking market was very strong, with shipments of drywall and bulk cement increasing. Going into the holidays, logistics firms anticipate e-commerce volume to pick up substantially by mid-November.

Employment
Reports on current employment levels this year versus last year at this time were mixed. More than half anticipate just slightly higher staffing levels this time next year. Truck driver turnover for the overall industry is quite high. For new drivers, turnover within the first 90 days of employment is very high. Trucking firms reported that only a very small percentage of applicants are hired, as many do not meet driver requirements.

Costs, wages, and prices
Most reported moderate increases in nonlabor input costs. Wages were reported as modestly increasing across most transportation industries with the exception of trucking, where wages continued to increase at a clip of 6 percent to 7 percent annually. Reports on increases in health care premiums for 2015 varied, ranging from less than 1 percent up to 20 percent. Some companies reported anticipated changes to plan structures to mitigate expenses, and others plan to share rate increases with employees. Regarding pricing power, a few reported an ability to raise prices, but others reported significant pushback by clients. Trucking firms plan to continue raising rates amid rising demand, reduced capacity, and continued increases in driver pay.

International trade issues
According to council members, the net impact of the recent strengthening of the dollar had been minimal on international activity when this meeting was held. A slowing trend in world trade was cited by one council member as the biggest factor affecting both imports and exports.

Overall, the sentiment of this group has improved since the last meeting in April, and all council members reported a higher outlook for short- and medium-term growth, with greater confidence in their forecasts. Council members were asked to cite the single most challenging issue facing their industry today. Trucking firms indicated that the lack of truck drivers and increased industry regulations will continue to cause diminished capacity for the foreseeable future. In maritime trade, ongoing ocean carrier consolidations will impact all U.S. container ports and there will be both winners and losers as a result of the carriers’ decisions.

What impact will these challenges have on commerce? The council meets again in April 2015. We’ll watch as conditions play out, and we’ll relay the information here.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

October 27, 2014 in Economic Indicators, Shipping, Southeast, Trade, Transportation | Permalink

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07/25/2014


Auto Sales Accelerating

"My pappy said 'Son, you're gonna drive me to drinkin' if you don't stop drivin' that hot rod Lincoln.'"
—Charley Ryan, 1958

Automobiles have loomed large in the American experience since Henry Ford's Tin Lizzie—the fabled Model T—first rolled off the assembly line in 1908. Back in the 1940s and 1950s, a favorite pastime of American youth was hot-rodding (or so I've been told by my much, much older siblings). Cars have inspired countless songs, including Charley Ryan's "Hot Rod Lincoln" and "Beep, Beep," a tempo-changing ditty from 1958 about a Nash Rambler and a Cadillac. And in the 1973 movie American Graffiti, who can forget the iconic 1932 Deuce Coupe driven by John Milner or Toad's 1958 Impala? It was all about the cars!

And it appears consumers feel pretty much the same way. The one shining star throughout this recovery in the wake of the Great Recession has been the growth in unit sales of motor vehicles. I think it's safe to say that folks are buying new rides; it's just that simple. Although retail sales have been growing modestly, motor vehicle sales have been one of the driving forces (OK, yes—pun intended) behind the upward movement seen overall.

Light vehicle sales continued rising in June, reaching a postrecession high of 16.9 million units (the seasonally adjusted annual rate; see the chart).

This growth can also been seen when looking at consumer credit outstanding. Consumer credit is debt that a consumer enters into with the intent of making an immediate purchase. There are two types of consumer credit: revolving and nonrevolving. Let's look for a moment at nonrevolving credit, which is defined as an installment loan in which the amount borrowed (plus interest) is repaid at set intervals for the life of the loan. As the chart below shows, nonrevolving credit has been growing over roughly the same period as vehicle sales, which is not surprising when you consider that vehicle loans account for roughly 40 percent of this type of credit.

According to the U.S. Census Bureau, automobile sales declined 0.2 percent in June. However, a year-over-year comparison shows that vehicle sales increased 7.0 percent (see the chart). The consensus among our regional auto dealer contacts have indicated they've seen a steady increase in year-to-date sales and are expecting "sales for the remainder of the year to be fairly robust."

Historically, auto sales fluctuate quite a bit. But as you can see, the chart above supports the claim that vehicle sales have shown strong growth compared with total retail sales since the end of the recession. These data provide insight into consumer spending trends. Although this is just one data series in a long list of economic indicators we follow, I think it's fair to say this one gives a better understanding of consumer behavior.

So we'll keep our eye on this indicator. And remember, "Beep-beep, beep-beep. His horn went beep-beep-beep."

Photo of Chris Viets By Chris Viets, a REIN analyst in the Atlanta Fed's Jacksonville Branch

July 25, 2014 in Automobiles, Manufacturing, Retail, Transportation | Permalink

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05/01/2014


Will 2014 Be a Tipping Point for Logistics?

The Atlanta Fed’s Trade and Transportation Advisory Council convened in early April in Jacksonville, Florida. Overall, the tone was encouraging compared with last year’s September meeting, when members reported decelerating activity during the summer. This time, a majority reported expanding activity during the fourth quarter and into 2014, despite the impact of unseasonably harsh winter weather. Additionally, the expectation for demand over the short term is for continued growth at a slightly higher pace.

District port contacts were upbeat, citing a rise in energy exports, steel imports, and higher container volumes. Trucking companies reported very strong freight volumes, which appears to them as real demand and not just a rebound from severe winter weather. It is important to note that the industry continues to operate with about 20 percent less capacity than prerecession levels, and capacity constraints are beginning to limit the movement of goods on highways.

Similar to past years, the railroad industry continues to see modest gains in intermodal traffic and shipments of grain and industrial equipment. Construction products were down slightly, along with significant declines in export coal. In air cargo, revenues are reportedly back to 2007 levels, albeit with only slightly higher air freight volumes boosted by international activity and sharp declines in domestic cargo.

Employment and pricing
Council members indicated employment levels remained stable, with no anticipated increase in staffing levels over the short term. In trucking, struggles to find drivers continue, and regulations have eliminated between 2 percent and 4 percent of drivers and have also reduced the number of hours and miles allowed for drivers. Hiring diesel mechanics has also become a challenge.

Besides the trucking industry, which has steadily been increasing driver pay, council members generally reported no significant upward pressure on labor costs, outside of cost increases for health insurance. As a result of capacity constraints, however, trucking companies project carrier rate increases of between 4 percent and 6 percent, on average, in both the near and longer term as supply and demand dictate. These capacity constraints are creating opportunities for rail carriers, who are seeing more pricing power as well.

International trade
In terms of growth rates of the value of air cargo, regions that should drive demand for U.S. exports include the Middle East, driven by Gulf countries, the United Arab Emirates, Saudi Arabia, and Israel; Asia (specifically China, Hong Kong, and Singapore); Europe, concentrated in areas in Western and Eastern Europe recovering from or not affected by euro zone issues; and Latin America and the Caribbean (and mostly Brazil). Air trade activity should remain flat.

District ports expect cargo volumes in 2014 to grow by up to 5 percent with strong increases in imports while exports will grow more slowly. Asia will remain a primary market for food exports from the United States, and some regions of Africa (chiefly in the western and southern areas) will be target markets for U.S. exporters as the demand for oil, gas, and food products increases.

Geopolitical concerns present potential downside risks for trade flows, and labor issues at West Coast ports could interrupt trans-Pacific trade. Congested and outdated highways, combined with a shortage of truckers, will eventually hamper the inland movement of goods. For example, the lack of funding for dredging or for antiquated lock systems at District inland ports and seaports could stunt growth.

In the near future
Overall, our Trade and Transportation Advisory Council members were upbeat and see two related tipping points approaching. First, prices are on the verge of increasing more rapidly as businesses are forced to pay more as freight charges, especially for trucking and rail, increase. Second, capacity constraints might suppress growth as demand-side bottlenecks in the movement of goods become more frequent.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch


May 1, 2014 in Economic conditions, Employment, Exports, International, Logistics, Shipping, Southeast, Trade, Transportation | Permalink

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03/03/2014


Tennessee’s Auto Industry: Pitfalls and Potholes

The automotive industry in Tennessee is one of the big drivers of the state’s economy. Nissan established its first U.S. manufacturing facility in Smyrna in the early 1980s, and auto-related investments have grown in the state ever since. General Motors opened a plant in Spring Hill in 1990, and Volkswagen opened its Chattanooga plant in 2011. These three facilities collectively employ more than 12,000 workers, a total that doesn’t include the vast amount of automotive suppliers that call Tennessee home. Currently, Tennessee is the largest employer of auto-industry workers in the South.

Coming out of the Great Recession, Tennessee is now well positioned to continue its standing as a competitive destination for the automotive industry. In October 2013, the Brookings Institute produced a report titled “Drive! Moving Tennessee’s Automotive Sector Up the Value Chain.” The report pointed out the Volunteer State’s various advantages in the auto industry, which included its geographic location, strong transportation infrastructure, and favorable cost structure.

The report also shared some interesting employment numbers. For example, Tennessee’s share of auto-manufacturing employment in North America increased to an all-time high of 3.3 percent by the end of 2012. Also, more than 12 percent of all jobs created in Tennessee since the recession are related to the auto industry. Needless to say, carmaking is important to the state’s economic health.

The Brookings report also pointed out some competitive challenges and pitfalls the state will need to navigate in the coming years:

  • Cost pressures: Input costs continue to rise, as does the consumer’s demand for greater value. Production increases in low-wage countries will continue to add pressure, even though the labor-cost gap between U.S. locations and low-cost countries is closing.
  • Demographics and workforce: Technology advances have made the automotive-manufacturing workplace much more sophisticated. The challenges to find an adequately trained workforce will be a constant challenge.
  • Technology: The entire automobile production system and product line will require constant technological upgrades to keep pace with changing regulatory requirements. For innovations to be effective, they will need to reach far into the automaking supply chain.

The Brookings report also suggested that the state lacks a strategic approach to maintaining a business-friendly environment for advanced industries. For example, Tennessee ranks in the bottom fifth of states in terms of tax competitiveness for new research-and-development firms and labor-intensive manufacturing.

The report also indicated that holes exist in Tennessee’s workforce-development programs. The state falls short in literacy, numeracy, and educational attainment, gaps that complicate the state’s ability to ensure the availability of an educated workforce for the auto industry. Also pointed out in the report was the state’s lack of research and development activity in the auto sector. The state also lacks a fertile technology network that caters to auto-sector suppliers, particularly the smaller ones.

Despite all these factors, the future for Tennessee’s auto industry looks bright. The state has momentum and the necessary resources to adapt to future challenges. Tennessee has the continent’s broadest automaking supply chain, a huge advantage in today’s auto-manufacturing environment. Past success does not guarantee future performance, but hopefully Tennessee can avoid the potholes on the road ahead.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch


March 3, 2014 in Automobiles, Employment, Jobs, Manufacturing, Tennessee, Transportation | Permalink

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11/05/2013


Energy Industry Keeps on Track

The Atlanta Fed’s Energy Advisory Council met at the New Orleans Branch on October 21 for its semiannual meeting to discuss current economic issues in the energy industry. Members were largely optimistic when sharing their views about demand, productivity, and pricing, which correlates to the ongoing “energy boom” we have discussed previously in SouthPoint. That said, some council members expressed concern about longer-term labor trends and noted ongoing uncertainty surrounding fiscal and regulatory policy issues.

We’ve heard for quite some time about the increase in oil and natural gas production, particularly related to shale resource production, processing, and transportation. With regard to the latter, council members discussed the importance of rail industry investment, which has been substantial recently. Increased use of rail transport has helped resolve transportation bottleneck issues that arose with rising production from shale resources. In fact, the American Association of Railroads reported that the U.S. rail industry has seen an unprecedented surge in crude shipments from less than 9,500 carloads in 2008 to more than 234,000 carloads in 2012. The numbers continue to increase in 2013. There were 97,135 carloads in the first quarter, up 166 percent from the first quarter of 2012.

With regard to pricing, council members generally agreed that natural gas prices will eventually rise. Factors behind the increase will likely be twofold: first (and probably most importantly in the near-term), once exports of liquefied natural gas begin, the supply glut in the United States is expected to alleviate, aligning U.S. pricing more closely with world prices. Second, the abundance of natural gas is prompting investment in technology dependent on it (for example, transportation, utilities, and manufacturing). As more projects that consume natural gas come online, higher demand is likely to push up market prices.

Some council members reported some concern about employment in the energy sector, because demand for skilled workers has outweighed the supply and led to labor shortages. One member pointed to an age gap in staff educated in engineering and possessing specialized skills. This appears to be tied to the decline in geology and energy-related education programs in colleges and universities following the oil price crash in the 1980s. Although these programs have regained popularity in recent years, and the supply of recent graduates with the desired degrees is growing, there is likely to be an experience gap that could be difficult to fill as current, more tenured workers retire.

Finally, though the Energy Advisory Council was generally upbeat about current industry conditions, members agreed that issues such as uncertainty surrounding fiscal policy, regulations, and ambiguity in the tax code are weighing on their confidence in the outlook. However, despite these concerns, members were unanimous in their belief that the policy and economic environment in the United States remained more attractive than most other energy-producing regions around the globe.

Photo of Rebekah DurhamRebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch


November 5, 2013 in Employment, Energy, Oil, Transportation | Permalink

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10/17/2013


Transportation Keeps On Truckin'

On September 24, the Atlanta Fed’s Advisory Council on Trade and Transportation met, as it does twice a year, to discuss current economic conditions in the various industries represented by transportation executives from across the Sixth Federal Reserve District. Dave Altig, the Atlanta Fed’s executive vice president and director of research, provided an economic overview and outlook, and the Jacksonville Branch’s Regional Executive Chris Oakley and Atlanta Fed President Dennis Lockhart facilitated the discussion.

The general tone of the conversation was one of cautious optimism, though some slowing in growth was reported since the last meeting in April 2013. Half of the council members reported higher year-over-year demand, and the other half indicated that activity was flat. The outlook for the next three to six months was split evenly as well, with some expecting higher levels of activity based on recent trends and the upcoming peak season for holiday shipping. Regarding inventory levels, council members indicated that supply chains remain lean and that these conditions will likely become a long-term strategy. Frustration with the regulatory environment and current fiscal issues that were raised in the several past meetings continue to be expressed.

At Sixth District seaports, activity was reported as mixed, with minimal cargo growth and a slowing of exports at one port; the export of chemicals and energy products was characterized as “off the charts” by another council member, who also claimed higher levels of container trade and imports of steel, coffee, rubber, and plywood.  

There was not much new news regarding labor markets. Compared with the same time last year, three council members reported higher workforce levels, three reported the same, and two reported lower levels of staffing. The employment outlook over the short term is the same as it was in April, with half of the council members anticipating higher levels and only one member expecting lower. The proportion of part-time or temporary workers was described as the same across the board.

Hiring challenges remain in trucking. Diesel mechanics and drivers are hard to find for various reasons, including the inability of the industry to attract the younger generation. Additionally, the industry faces a wave of vacancies over the coming years as a result of pending retirements. Hours of service regulations that went into effect in July 2013 are affecting the utilization of trucking equipment between 2 percent and 10 percent and overall capacity by approximately 25 percent.

Fuel price increases earlier this year have had no discernible effect on current or projected cargo volumes at Sixth District ports; marine fuel prices, although high, have been relatively stable for an extended period. Because of declines in freight, decreased demand, and a sagging global economy, air freight carrier revenue has not been buoyed by a recent 9 percent decrease in global jet fuel prices. For those motor carriers that are not hedged on fuel, higher prices have had a material effect on business.

The majority of council members indicated that they have already or will be initiating slight near-term price increases through annual rate adjustments, at a minimum, to cover rising input costs including driver wages and health care costs. Longer term, most anticipate more aggressive pricing as market conditions allow, compensating for increases in equipment and regulatory costs.

Council members’ outlook for growth over the next three to six months mirrors the responses from April: 75 percent expect higher growth, and the remaining 25 percent anticipate the same level of growth. In the medium term, two-thirds of the council members expect higher rates of growth, with the remaining anticipating the same rate of growth. Much like our conversations with other business leaders throughout the region, however, economic and policy uncertainty clouds the council’s outlook.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed’s Jacksonville Branch

October 17, 2013 in Economic Growth and Development, Southeast, Transportation | Permalink

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04/11/2013


Is Transportation Feeling Sequestration’s Effects?

The Atlanta Fed’s Trade and Transportation Advisory Council recently convened at the Jacksonville Branch to discuss current economic conditions in the transportation sector. The conversation focused on various topics related to the movement of goods as well as on how fiscal tightening will impact the nation’s ports and airports.

A poll of the council members revealed that demand was slightly higher in the first quarter of 2013 for the majority of firms than it was for the same period in 2012. Most council members indicated that they are implementing price or rate increases whenever possible: trucking companies are able to assess fuel surcharges along with some nonfuel price increases as wage pressures mount for qualified and available truck drivers. Railroads continue to enjoy increases in intermodal volume as higher fuel prices drive some cargo from truck to rail. In ocean shipping, fuel costs are a percentage of the direct cost per load and thus have a material effect on the bottom line.

First-quarter 2013 employment levels were higher for a third of the council members than year-earlier levels, and half of the council members expect somewhat higher workforce levels over the next three to six months. The proportion of part-time/temporary workers has remained virtually unchanged. The majority of the council members are planning to increase the pace of capital spending; funding for capital expenditures comes from a variety of sources. Ports in particular are seeking more money from public-private partnerships.

The outlook for short-term growth by council members is less positive than it was the last time the Atlanta Fed conducted the poll, in October 2012. At that time, half expected higher growth for the next three to six months. Currently, just over one-third anticipate higher growth in the near term. However, looking out two to three years, nearly 90 percent are forecasting higher growth.

During the meeting, the council members were queried about the effects of sequestration on their industries, particularly as it relates to the furloughing of U.S. Customs and Border Protection (CBP) personnel. Members indicated that the expectation of air cargo and maritime shipping industries at the outset of sequestration was that the budget cuts would affect the ability of ports and airports to clear goods in a timely manner, which would impact perishables and just-in-time shipments. Sequestration originally called for customs agents’ overtime to be cut at ports all over the country, and in March, approximately 60,000 CBP agents received furlough notices.

Recently, there have been reports of delays impacting perishable imports at airports in the Sixth Federal Reserve District. The Miami Herald reported that imports of perishables such as flowers, fruits, vegetables, and fish are being threatened by slow cargo inspections resulting from cuts in overtime pay for customs officers. And as the flower industry gears up for one of its busiest days of the year—Mother’s Day—the potential for delays is concerning. About 90 percent of all flowers the United States imports arrive at Miami International Airport, where customs officers who specialize in perishable goods inspect them. Delayed inspections can result in the stems going bad or arriving too late to be transported across the country in refrigerated trucks. The millions of stems that come through Miami for Mother’s Day could be affected.

According to an April 3 American Shipper article, the CBP announced it was postponing plans to furlough employees after an enactment of a six-month budget for the remainder of fiscal year 2013. This appropriation gives the U.S. Department of Homeland Security more flexibility in implementing budget reductions by taking money out of other programs so as not to impact front-line personnel. This measure would provide some breathing room at ports and airports. In addition, alternative measures have been put in place, such as cross-training of inspectors and relying on private sector entities to fill in the gaps.

In addition to perishable imports, interruptions in passenger processing at airports are a concern—though these types of delays were problematic before sequestration. There have also been some reports of delays in the screening of passenger cruise ships. 

Despite these scattered reports of problems, however, the consensus of the Atlanta Fed Trade and Transportation Advisory Council members was that it is still early, and the long-term effects from fiscal tightening on cargo and travelers cannot yet be fully determined.

A look at the effects of sequestration on import volumes as cuts begin to take effect will be the subject of a future blog. As always, we welcome your comments.

By Sarah Arteaga, director of the Regional Economic Information Network for the Atlanta Fed’s Jacksonville Branch

April 11, 2013 in Economic Growth and Development, Employment, Transportation | Permalink

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05/19/2011


Logistics in the Southeast, part 2: Supply chain challenges and opportunities

Back in February, I blogged here about a conference, "Freight in the Southeast—Moving Our Region's Business." It is increasingly obvious that the movement of goods both in the Sixth District and throughout the county is critical to commerce and the strength of the economy. Given the challenges we face domestically as a result of the Mississippi River flooding, and internationally as a result of the disaster in Japan, the timing seems right to circle back to the topic of logistics.

Earlier in the year, the Retail Industry Leaders Association (RILA) held its annual logistics conference, which it bills as "the largest single gathering of supply chain decision makers from retail and consumer product companies." Input and feedback from conference participants supplement information the Atlanta Fed receives from members of its trade and transportation advisory council, which is composed of industry leaders and experts from throughout the Sixth District.

Takeaways from the conference are too numerous to list, but a few stand out:

  • The nation's top retailers are rethinking their customer sales and delivery models. While Internet purchases are increasing as a share of total sales, retailers recognize that the way online sales are made is also in transition—from the desktop to mobile devices.
  • Growth in online sales is expected to be five times that of traditional, in-store sales and could amount to 15 percent of total sales by the end of the decade.
  • Sellers that rely on "old-school" approaches will miss out on a rapidly growing slice of the consumer pie.


The most successful retailers of tomorrow will be those who recognize the need for a multi-channel strategy (stores, catalogs, and the Web with purchases being made in person, over the phone, online via desktop, smart phone, tablet, etc.). This transition creates both challenges and opportunities. The number one challenge is the alteration of the supply chain: logistics providers become responsible for delivery of the goods ordered and may well be the only face-to-face contact the customer has with the "store." Outsourced providers of such services and the quality of their work can make or break the perception that the customer has of the shopping experience.

Shortly following the conference, I had a personal experience that made me circle back to some of what I had learned at the RILA conference. My wife and I ordered a new headboard (online) from a national merchandiser that features furniture and other housewares. The item was received damaged and because the delivery had been outsourced, requiring extensive communication with the seller's customer relations team. Ideally, this would have been resolved with the delivery folks acting as representatives for the retailer. In our situation, the ideal was not achieved—we still await replacement of the damaged item and, of course, the seller will be out the cost of the replacement and shipping. Perhaps this is an example of one of those supply chain opportunities—the creation of a seamless customer experience. Regardless of where the purchase is made (in store, via catalog, over the Internet, etc.) and how the purchase is delivered (picked up, delivered by store personnel, delivered by a third party, etc.), the future belongs to those retailers who recognize the criticality of the supply chain and incorporate the responsibility into their marketing department. The message was clear to me: the transaction doesn't conclude once the sale is made, but rather once the customer has taken final delivery of the purchase and is fully satisfied.

Opportunities exist for third-party logistics providers. As the conference emphasized, being able to contribute to an exemplary customer experience will place top service providers in a competitively advantageous position. As consumers change buying approaches and delivery expectations, successful partnerships between retailers and those transporting and delivering purchases will become critical.

By Chris Oakley, vice president at the Atlanta Fed and Jacksonville Branch regional executive

May 19, 2011 in Logistics, Retail, Transportation | Permalink

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