The Wizard’s Wand News – August 2023

August 31th, 2023

The News behind the News!

Greetings from the Wizard!

As summer winds down and Labor Day approaches, we’re all keeping our fingers crossed for a more robust fall season ahead. Let’s not dwell on the specifics of summer’s sales slump—what’s more intriguing are the underlying issues at play in our current business landscape.

Let’s dive into a few key factors that are setting the stage for the business world, and more specifically, our vibrant flower industry.

The Mighty Fed

Economic waters are certainly interesting to navigate. The Federal Reserve continues to maintain its vigilant stance, aiming to bring inflation down to a steady two percent. Their commitment to this task is unwavering, requiring a solid streak of positive data before they loosen their grip on their restrictive monetary policy.

Interest rates stand tall, nearly doubling auto loan figures. The job market, however, has been a puzzle with declining job openings without increasing unemployment rates. The labor market is trying to find equilibrium, with the silver lining being the record number of women joining the workforce. The rebalancing of the labor market is incomplete.

Labor Landscape

The canvas of the labor market is not without intriguing strokes. Industries grappling with challenges, like manufacturing, are opting for reduced hours over aggressive layoffs, echoing the labor shortages of recent times. July witnessed an average workweek matching pandemic-era lows. Sectors like trucking and manufacturing are logging fewer hours that compare to 2020.

Unpacking Wages and Cost Dynamics

On the wage front, UPS and the Teamsters have inked a deal, resulting in some drivers pocketing as much as $49 an hour. This might ripple into the shipping realm, potentially leading to rate hikes for companies like FedEx and UPS.

Brace for Impact, UPS shippers! 2024 could see a double-digit spike in general rates, aiming to compensate for the substantial cost increases incurred through the tentative Teamsters union contract.

Demand’s Current State

July shipments dipped slightly below January levels, contrary to the usual seasonal trend of a 10% increase. A 1.2% dip in shipments from June on a seasonally adjusted basis raises eyebrows. The dynamics are shifting with improving real incomes and a dwindling concern about destocking. Stockpiled inventories are proving tricky to whittle down due to stalling global demand and rising borrowing costs.

The Spending Saga

While Americans continue to flex their spending muscles, larger retailers are hesitant about its longevity. You might want to check out this insightful article from Bloomberg on the subject. The auto industry’s inventory is expanding for many models, leading to price adjustments.

Manufacturing Rebound

US factory production jumped by 0.5% in July, with motor vehicle output surging by 5.2%. While it’s a step forward, it’s still 0.7% below production levels from a year ago. Excluding motor vehicles, manufacturing output rose by 0.1%, indicating a gradual recovery.

Navigating the Logistics Maze

Freight’s current domain is marked by a “lower for longer” trajectory, with both shipments and expenditures witnessing a significant drop. July saw a year-over-year shipment decline of 8.9%, and expenditures dropped by 24.4%. The fall in freight costs is also attributed to lower fuel surcharges. Diesel fuel prices have seen their fair share of fluctuation, rising by over 60 cents per gallon since July. However, they’re still lower than the highs of January 1st.

As if that’s not enough, the loss of Yellow trucking has implications for consumer prices.

After the shipping giant filed for bankruptcy, its competitors have already indicated they will not match its low-cost pricing.

The Panama Canal back up due to drought is also a current logistics issue. So far, the supply chain is not desperate for these goods. This is going to get worse before it gets better as the Panama Canal pileup due to drought reaches over 150 vessels. Major shipping routes are struggling with water shortages. El Niño could make it worse as well as possibly take a toll on flower production in certain regions.

In the Grand Finale

Growth is in deceleration mode, and product shortages are relatively rare these days. Mergers and acquisitions are playing coy this quarter, as companies weigh the pros and cons of expanding amidst the current flower market’s ebb and flow. Of course, we have heard the exception with the news from the Delaware Valley Floral Group and Staple Street Capital. We wish them a heartfelt congratulations! Please see the link from WFFSA.

Delaware Valley Floral Group’s Strategic Partnership with Staple
Street Capital.
👈Click here to see read more about the partnership.

Exchange rates, especially in Colombia, are facing headwinds. Ecuador and Colombia’s political undercurrents might bring about reforms that influence costs. Countries exporting to the US are dealing with high inflation rates, which directly impact prices.

It’s survival of the fittest out here! All sectors within the flower business are feeling the slowdown’s pinch and must gear up to weather the storm. Let’s hope for the best but stay prepared for the worst—a mantra that rings true now more than ever.

We are seeing an uptick that started mid-August and are looking for a bigger one after Labor Day.

Wishing you a fantastic Labor Day weekend, and as always, thank you for tuning in! The fall will be here soon.

Warm regards,
The Flower Wizard

Be the first to know about the latest floral industry trends by signing up for our newsletter.

Sign up to our blog