Respondents to DC Velocity 's 2012 Outlook Survey were evenly divided on where the U.S. economy was headed this year. But most are still upping their budgets for transportation services.
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.
Three years after the official end of the Great Recession, there's no clear consensus among DC VELOCITY's readers on where the economy is headed in 2012. Respondents to our annual Outlook reader survey were almost equally divided in their opinions: positive, negative, or simply not sure. That same uncertainty is reflected in their views of their own companies' revenue prospects and in their overall logistics budgets. In fact, there was only one thing almost all of the 189 respondents to this year's survey agreed on: Oil prices will head up in 2012.
Just 39 percent of the respondents to the online poll, which was conducted in November, said they were optimistic about the direction the U.S. economy would take in 2012. That's the lowest percentage since our 2009 survey, when just 23 percent expressed optimism about the economy. It's also a significant drop from the percentage of respondents who were upbeat about the economic outlook for 2011 (52 percent) and 2010 (56 percent).
Meanwhile, about one-third of this year's survey respondents (34 percent) said they were pessimistic about business conditions in 2012, up from 22 percent last year. And here's that nagging sense of uncertainty: 27 percent said they were unsure what would happen, about the same as last year's 26 percent.
When it came to their own companies' prospects for 2012, opinion was once again almost evenly divided among survey takers. Thirty-four percent said they anticipated strong sales growth, while 35 percent foresaw flat revenues. Another 25 percent thought company sales would be weak. Six percent said they simply didn't know.
Survey respondents held out even less hope for overall U.S. economic growth. Almost half (49 percent) said they believed that growth would be weak, and 38 percent said they thought it would be flat. A paltry 10 percent predicted strong growth, and 4 percent said they had no idea.
As for the respondents themselves, the largest share worked for distributors, at 33 percent, followed by manufacturers, with 31 percent. The remainder worked for logistics service providers (18 percent), retailers (10 percent), or other types of businesses (8 percent).
*Note: Survey respondents were allowed to select more than one response.
Budget creep
Respondents seemed a little more definite when it came to their transportation spending plans. More than half (55 percent) said they expected to spend more for transportation services in 2012 than they had in 2011. Another 33 percent predicted their spending on transportation would remain the same, 6 percent anticipated a decrease, and 6 percent said they weren't sure. Of those who plan to spend more, 52 percent forecast an increase of 3 to 5 percent over what they spent in 2011. One-fourth anticipate spending just 1 to 2 percent more, and 15 percent expect an increase in the neighborhood of 5 to 9 percent. Only 8 percent foresaw an increase of 10 percent or more.
The projected increase in transportation spending is most likely related to respondents' views on where oil prices are headed. The vast majority—89 percent—said they were concerned that oil prices would rise in 2012, which would presumably result in higher freight rates.
Even so, only 40 percent of survey takers said their overall spending on logistics and related products and services (including material handling equipment, information technology, and freight transportation) would increase in 2012. Another 44 percent said their overall logistics expenditures would remain the same as in 2011, and 11 percent forecast a decline. The remaining 5 percent were unsure.
Among those respondents who expect to boost their overall logistics spending, the biggest share—43 percent—said their budget would rise by 3 to 5 percent compared with 2011. About one-fifth (21 percent) expected an increase of just 1 to 2 percent. But others forecast a bigger jump: 16 percent said they expect to spend 5 to 9 percent more than last year, and a full 20 percent said their budgets would increase by more than 10 percent.
As was the case in the 2010 and 2011 surveys, less-than-truckload (LTL) services topped the readers' list of planned transportation purchases. Seventy-six percent of survey takers said they planned to buy LTL services in 2012. About 65 percent said they would buy small-package shipping services, while 60 percent said they planned to use truckload carriers. (See Exhibit 1 for the full breakdown by mode.)
Investments on tap
Transportation, of course, isn't the only service readers purchase. Some 40 percent of the survey participants also buy contract logistics services. Of those respondents who use third-party logistics service providers (3PLs), 26 percent said they planned to increase their use of contract services in 2012. Sixty-one percent said their use of 3PLs would stay the same, while 13 percent expected to cut back on outsourcing. Readers have some flexibility when it comes to changing their outsourcing plans: Of those who use 3PLs, 88 percent said the average length of their contracts is three years or less.
Readers are planning to continue investing in warehousing and material handling products and services in the coming year. The top choices: racks and shelving (51 percent), lift trucks (45 percent), batteries and battery handling products (37 percent), safety products (36 percent), and dock products (34 percent).
They also intend to invest in technology. At the top of their shopping list were warehouse management systems (WMS), with 27 percent, and transportation management systems (TMS), with 24 percent. But it appears readers won't just be buying supply chain execution software this year. Twenty-one percent of survey takers said they planned to purchase business intelligence applications, software designed to help users analyze and improve their end-to-end supply chains. Inventory optimization software (19 percent), planning and forecasting software (18 percent), and demand planning apps (14 percent) were also popular choices.
Reining in costs
Although there was no real consensus among survey respondents about the economic outlook, readers aren't just sitting back and waiting to see what happens. Given the events of the past year—earthquakes, floods, civil unrest in the Middle East, and unpredictable oil prices—it's no surprise they're taking steps to rein in costs in 2012.
Readers appear to be sticking with tried-and-true methods to keep their logistics spending under control. Forty-one percent said they would consolidate more shipments into truckloads, and the same number said they expected to renegotiate with carriers. Nearly as many—36 percent—said they planned to cut back on express shipments. Another popular approach to controlling costs is a supply chain network redesign, cited by 26 percent of survey takers. Other favored tactics included shipping orders less frequently to customers, using fewer carriers, and switching more shipments from truck to rail. (See Exhibit 2.)
And finally, there's one glimmer of good news in all this cost-cutting: Just 7 percent said they planned to cut costs by laying off workers.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."