Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
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 today 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 findings in the 2012 report:
�?� 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 multi-year 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 traditionally 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 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.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.