Our exclusive survey shows that distribution managers weren't waiting around last fall for official pronouncements of a recession. They were already buckling up and hunkering down for a rough ride.
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
DCV's readers haven't been sitting idly by as the nation slips further into recession—they're taking action in response to a rapidly deteriorating economy.
These actions have included putting projects on hold and laying off workers, while at the same time investing in equipment and software that will boost productivity in their distribution operations.
That's the picture that emerges from our exclusive 2009 Outlook survey—an online poll conducted among DCV's readers right after the presidential election in early November. A total of 335 readers completed the questionnaire. The majority of the respondents worked for either manufacturers (36 percent) or distributors (31 percent). The remainder worked for service providers (15 percent), retailers (8 percent), and other businesses (10 percent).
Not surprisingly, most survey respondents were bearish when it came to the economic outlook for 2009. About 43 percent said they were pessimistic about the economy overall. "This will be the worst year in three decades for manufacturers," one respondent said. Another 34 percent said they were unsure what was going to happen this year, while only 23 percent said they were optimistic about 2009.
When asked about the U.S. economy's growth prospects for this year, 38 percent of respondents said they expected growth to be flat, while another 33 percent said it would be weak. Just over a quarter— 26 percent—said growth would be down. Only 3 percent said they thought the economy would see strong growth this year.
As for their view of their own business, 67 percent said that their company's sales would be either
flat or down, while 17 percent expected weak revenue. "Next year will be flat with an increase in sales
but not in profits," one reader told us. Only 16 percent said sales would be strong.
First response
As corporations tighten their belts, distribution operations will likely feel the squeeze. Fifty-seven percent of the 335 survey respondents said they planned to make changes to their distribution operations in response to the poor economic conditions. Of those respondents, 38 percent said they would hold back or delay distribution projects. Another 35 percent planned to lay off employees and workers. However, only 16 percent said they would shutter warehouses or distribution centers. (See Exhibit 1.)
Although some companies are holding off on distribution projects, others are going ahead with investments in software and equipment. Fifteen percent of the survey respondents who planned to make changes to their distribution operations said they would install new material handling equipment to boost productivity. And more than a quarter (27 percent) said they planned to install new software applications—again, in hopes of enhancing output.
When asked which types of software they were contemplating buying, 14 percent of the survey respondents mentioned warehouse management systems. Another 8 percent said they planned to buy a transportation management system, while 7 percent said they expected to purchase a labor management package. (See Exhibit 2.)
The survey also asked companies about their plans for outsourcing logistics functions this year. Of the 37 percent of respondents who said they were currently using a thirdparty logistics service provider (3PL), 57 percent said their 3PL usage would remain the same in 2009. Twenty-seven percent expected to cut back on outsourcing, while 16 percent planned to step up their use of 3PLs.
For all the gloomy projections, the survey findings did reveal one bright spot: Fifty-nine percent of the respondents expected transportation rates to drop this year as a result of declining oil prices.
Overall, the comments of one respondent seemed to sum up the feelings of the group when it came to the challenges of managing in difficult economic times. Said the respondent, "Given the current state of the economy, those that have done things right and have kept a close watch on operations and expenses in good times will still be standing when economic conditions improve. This is the time to re-examine and reinforce the fundamentals of good management."
The way that shippers and carriers classify loads of less than truckload (LTL) freight to determine delivery rates is set to change in 2025 for the first time in decades, introducing a new approach that is designed to support more standardized practices.
But the transition may take some time. Businesses throughout the logistics sector will be affected by the transition, since the NMFC is a critical tool for setting prices that is used daily by transportation providers, trucking fleets, third party logistics providers (3PLs), and freight brokers.
For example, the current system creates 18 classes of freight that are identified by numbers from 50 to 500, according to a blog post by Nolan Transportation Group (NTG). Lower classed freight costs less to ship, ranging from basic goods that fit on a standard shrink-wrapped 4X4 pallet (class 50) up to highly valuable or delicate items such as bags of gold dust or boxes of ping pong balls (class 500).
In the future, that system will be streamlined by four new features, NMFTA said:
standardized density scale for LTL freight with no handling, stowability, and liability issues,
unique identifiers for freight with special handling, stowability, or liability needs,
condensed and modernized commodity listings, and
improved usability of the ClassIT classification tool.
The new changes look to simplify the classification by grouping similar articles together and assigning most classes based solely on density – the most measurable of the four characteristics, he said. Exceptions will be handled separately, adding one or more of the three remaining characteristics in cases where density alone is not adequate to determine an accurate class.
When the updates roll out in 2025, many shippers will see shifts in the LTL prices they pay to move loads, because the way their freight is classified – and subsequently billed – might change. To cope with those changes, he said it’s important for shippers to review their pricing agreements and be prepared for these adjustments, while carriers should prepare to manage customer relationships through the transition.
“This shift is a big deal for the LTL industry, and it’s going to require a lot of work upfront,” Davis said. “But ultimately, simplifying the classification system should help reduce friction between shippers and carriers. We want to make the process as straightforward as possible, eliminate unnecessary disputes, and make the system more intuitive for everyone. It’s a change that’s long overdue, and while there might be challenges in the short term, I believe it will benefit the industry in the long run.
Business leaders in the manufacturing and transportation sectors will increasingly turn to technology in 2025 to adapt to developments in a tricky economic environment, according to a report from Forrester.
That approach is needed because companies in asset-intensive industries like manufacturing and transportation quickly feel the pain when energy prices rise, raw materials are harder to access, or borrowing money for capital projects becomes more expensive, according to researcher Paul Miller, vice president and principal analyst at Forrester.
And all of those conditions arose in 2024, forcing leaders to focus even more than usual on managing costs and improving efficiency. Forrester’s latest forecast doesn’t anticipate any dramatic improvement in the global macroeconomic situation in 2025, but it does anticipate several ways that companies will adapt.
For 2025, Forrester predicts that:
over 25% of big last-mile service and delivery fleets in Europe will be electric. Across the continent, parcel delivery firms, utility companies, and local governments operating large fleets of small vans over relatively short distances see electrification as an opportunity to manage costs while lowering carbon emissions.
less than 5% of the robots entering factories and warehouses will walk. While industry coverage often focuses on two-legged robots, Forrester says the compelling use cases for those legs are less common — or obvious — than supporters suggest. The report says that those robots have a wow factor, but they may not have the best form factor for addressing industry’s dull, dirty, and dangerous tasks.
carmakers will make significant cuts to their digital divisions, admitting defeat after the industry invested billions of dollars in recent years to build the capability to design the connected and digital features installed in modern vehicles. Instead, the future of mobility will be underpinned by ecosystems of various technology providers, not necessarily reliant on the same large automaker that made the car itself.
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
A coalition of truckers is applauding the latest round of $30 million in federal funding to address what they call a “national truck parking crisis,” created when drivers face an imperative to pull over and stop when they cap out their hours of service, yet can seldom find a safe spot for their vehicle.
According to the White House, a total of 44 projects were selected in this round of funding, including projects that improve safety, mobility, and economic competitiveness, constructing major bridges, expanding port capacity, and redesigning interchanges. The money is the latest in a series of large infrastructure investments that have included nearly $12.8 billion in funding through the INFRA and Mega programs for 140 projects across 42 states, Washington D.C., and Puerto Rico. The money funds: 35 bridge projects, 18 port projects, 20 rail projects, and 85 highway improvement projects.
In a statement, the Owner-Operator Independent Drivers Association (OOIDA) said the federal funds would make a big difference in driver safety and transportation networks.
"Lack of safe truck parking has been a top concern of truckers for decades and as a truck driver, I can tell you firsthand that when truckers don’t have a safe place to park, we are put in a no-win situation. We must either continue to drive while fatigued or out of legal driving time, or park in an undesignated and unsafe location like the side of the road or abandoned lot,” OOIDA President Todd Spencer said in a release. “It forces truck drivers to make a choice between safety and following federal Hours-of-Service rules. OOIDA and the 150,000 small business truckers we represent thank Secretary Buttigieg and the Department for their increased focus on resolving an issue that has plagued our industry for decades.”