Every year for the past four, transportation and logistics professionals have waited for the high priestess of industry data, Rosalyn Wilson, to deliver them from the near-ruins of the Great Recession and into the land of bountiful returns that many had grown accustomed to prior to the downturn.
Judging by the conclusions of the Council of Supply Chain Management Professionals' 24th annual "State of Logistics Report," which Wilson authors, they may have some more time to wait—at least a couple of more years.
The report, which was released June 19 in Washington, D.C., chronicles the nation's logistics output in 2012. In it, Wilson writes that the logistics industry may be experiencing a "new order," characterized by the bump-along-the-bottom growth that has marked the post-recession era. This pattern of sluggish growth will last at least until the end of 2015, she predicts.
"The economy and the logistics sector will slowly regain sustainable momentum, but we will still experience unevenness in growth rates," Wilson writes in the report.
The picture for 2013, at least through mid-year, has a similar look to the past two years, said Wilson, whose data-crunching continued right up to the report's release. As she gathered the data and prepared her narrative, Wilson said she realized "there was not a truly new story to tell."
Recoveries in the housing and automotive sectors have been a welcome positive, she said. Offsetting those strengths, though, have been the impact of the 10-percent across-the-board federal budget cuts mandated under "sequestration"; a rise in payroll tax deductions to historical norms; higher operating costs for logistics service providers; and a global economic slowdown, she added.
Among the report's findings for 2012:
• U.S. logistics costs reached $1.33 trillion, a 3.4-percent gain from 2011 levels. The rate of increase was less than half of the year-on-year increase from 2010 to 2011. Similarly, transportation costs borne by users of the logistics system rose 3 percent, about half the rate of increase reported from 2010 to 2011. Logistics costs as a percentage of nominal gross domestic product (GDP)—a ratio often cited to measure the supply chain's efficiency in moving the nation's output—came in at 8.5 percent, the same as in 2011. These trends reflect the impact of slow economic growth as well as gains in productivity, asset utilization, and inventory management made by the supply chain sector since the recession ended, according to Wilson. These improvements will allow the ratio to remain at low levels even as business and shipping activity rises through the years, she said. The ratio "compares quite favorably to that of our trading partners," she said.
• Inventory carrying costs rose 4 percent, as rising inventory levels in part neutralized the continued decline in interest rates. Business inventories rose in every quarter but the second. Inventory levels in the first quarter surpassed the levels of the third quarter of 2008, considered to be the worst quarter of the recession. Retail, wholesale, and manufacturing inventories all rose in 2012, with retail inventories increasing by 8.3 percent, more than double the increase of wholesale inventories and more than six times the rise in manufacturing inventories.
For all their efforts to reduce inventory levels through better forecasting methods, retailers still found themselves overstocked as retail sales began flagging in May after a strong start to the year, Wilson said. Over time, retailers will become more adept at pushing inventory back upstream through the supply chain, especially to wholesalers, Wilson said. However, the slowing inventory velocity caused in part by the decline in consumer activity from May onward caught everyone—including the retailers—flat-footed, she said. "Inventory is not moving, period," she said in an interview several days before the report's release. Retail stocks must be drawn down considerably for the economy to fully recover, Wilson said.
• Warehousing costs increased by 7.6 percent as rising inventories fully absorbed warehouse capacity, which had already been pared back during and immediately after the recession. As a result, leasing rates also rose, the report said. New construction took up some of the slack but rising occupancy rates offset the capacity increases, the report said.
• Trucking costs—essentially defined as rates paid by modal users—increased by 2.9 percent. Intercity trucking costs rose 3.1 percent, while "local delivery," or non-intercity, costs climbed 2.1 percent. Truck tonnage increased 2.3 percent over 2011 levels. Truckers have been satisfied with their tonnage activity through the first half of 2013, Wilson said. However, they have been disappointed in their inability to raise prices to levels needed to neutralize a host of rising costs from labor to equipment and still make a decent return, she said.
The report predicted that the shortage of qualified drivers, now believed to stand at about 30,000, could swell to nearly four times that by 2016. That increase will be caused by various government regulations that will take drivers off the road as well as industry struggles to hire and retain younger drivers to replace those who retire, quit, or die. Only about 17 percent of the current driver population is under 35, according to the report.
• Rail transport costs paid by users rose 4.9 percent, down from an increase of more than 16 percent in 2011. The large drop came despite the second best year on record for intermodal volume and a leveling-off in a severe multiyear decline in coal traffic, which accounted for more than 40 percent of rail tonnage. Wilson said rail equipment and infrastructure is ample and in excellent shape, a result of the industry pouring a record $13 billion last year into capital spending, a 16.1-percent increase over 2011 levels.
Wilson blamed the sharp decline in rail shipping costs on fall-offs in tonnage for coal, grain, and chemicals, which accounted for 62 percent of total tonnage hauled. Intermodal, despite reporting year-over-year gains, came under severe rate pressure from truck competition, especially as railroads began expanding into shorter-haul lanes that traditionally have been the province of motor carriers. Three commodities reporting tonnage gains—petroleum products; motor vehicles and equipment; and crushed stone, sand, and gravel—comprised only 15 percent of rail tonnage last year, according to the report.
• The ocean and international air sectors had a tough time of it last year with slack global economies and a glut of capacity combining to curb demand and pricing. For example, ocean costs fell by 0.9 percent last year as vessel capacity rose 7.2 percent. Capacity is expected to rise by 10 percent in 2013 as new vessel deliveries exceed demand to fill it, Wilson said.
The annual "State of Logistics Report" is produced by the Council of Supply Chain Management Professionals (CSCMP) and sponsored by Penske Logistics.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
Jason Kra kicked off his presentation at the Council of Supply Chain Management Professionals (CSCMP) EDGE Conference on Tuesday morning with a question: “How do we use data in assessing what countries we should be investing in for future supply chain decisions?” As president of Li & Fung where he oversees the supply chain solutions company’s wholesale and distribution business in the U.S., Kra understands that many companies are looking for ways to assess risk in their supply chains and diversify their operations beyond China. To properly assess risk, however, you need quality data and a decision model, he said.
In January 2024, in addition to his full-time job, Kra joined American University’s Kogod School of Business as an adjunct professor of the school’s master’s program where he decided to find some answers to his above question about data.
For his research, he created the following situation: “How can data be used to assess the attractiveness of scalable apparel-producing countries for planning based on stability and predictability, and what factors should be considered in the decision-making process to de-risk country diversification decisions?”
Since diversification and resilience have been hot topics in the supply chain space since the U.S.’s 2017 trade war with China, Kra sought to find a way to apply a scientific method to assess supply chain risk. He specifically wanted to answer the following questions:
1.Which methodology is most appropriate to investigate when selecting a country to produce apparel in based on weighted criteria?
2.What criteria should be used to evaluate a production country’s suitability for scalable manufacturing as a future investment?
3.What are the weights (relative importance) of each criterion?
4.How can this methodology be utilized to assess the suitability of production countries for scalable apparel manufacturing and to create a country ranking?
5.Will the criteria and methodology apply to other industries?
After creating a list of criteria and weight rankings based on importance, Kra reached out to 70 senior managers with 20+ years of experience and C-suite executives to get their feedback. What he found was a big difference in criteria/weight rankings between the C-suite and senior managers.
“That huge gap is a good area for future research,” said Kra. “If you don’t have alignment between your C-suite and your senior managers who are doing a lot of the execution, you’re never going to achieve the goals you set as a company.”
With the research results, Kra created a decision model for country selection that can be applied to any industry and customized based on a company’s unique needs. That model includes discussing the data findings, creating a list of diversification countries, and finally, looking at future trends to factor in (like exponential technology, speed, types of supply chains and geopolitics, and sustainability).
After showcasing his research data to the EDGE audience, Kra ended his presentation by sharing some key takeaways from his research:
China diversification strategies alone are not enough. The world will continue to be volatile and disruptive. Country and region diversification is the only protection.
Managers need to balance trade-offs between what is optimal and what is acceptable regarding supply chain decisions. Decision-makers need to find the best country at the lowest price, with the most dependability.
There is a disconnect or misalignment between C-suite executives and senior managers who execute the strategy. So further education and alignment is critical.
Data-driven decision-making for your company/industry: This can be done for any industry—the data is customizable, and there are many “free” sources you can access to put together regional and country data. Utilizing data helps eliminate path dependency (for example, relying on a lean or just-in-time inventory) and keeps executives and managers aligned.
“Look at the business you envision in the future,” said Kra, “and make that your model for today.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.