"State of Logistics Report" predicts bullish freight demand for 2014
The Council of Supply Chain Management Professionals' 25th annual "State of Logistics Report," sponsored by Penske Logistics, is overflowing with data points.
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.
A "banner year." The Council of Supply Chain Management Professionals' 25th annual "State of Logistics Report," sponsored by Penske Logistics, is overflowing with data points. But it is those two words—used by report author Rosalyn Wilson to describe the outlook for 2014—that are likely to get the most attention. That's because Wilson has been anything but a wild-eyed optimist about the economy and the logistics business since the Great Recession ended in 2009.
Wilson's bullishness about 2014 seems out of sync with her findings that 2013's results were no better or worse than those for the previous less-than-stellar years. Transportation revenues—measured as "costs" in the report—rose just 2 percent year over year. Trucking revenues gained only 1.6 percent, making 2013 one of the weakest years for the industry in recent history, the report said. Intercity truck revenues rose 1.8 percent, while the local delivery segment gained 1.2 percent. Truck tonnage gained 6.1 percent year-over-year, a misleading figure because it is skewed by the enormous number of shipments of heavy sand used to support hydraulic fracturing, or fracking, operations in the Northern Plains, Texas, and Pennsylvania.
Truck shippers continued in 2013 to resist rate increases, according to the report. Although carriers are operating at or near full capacity, shippers believe they have enough service options to hold the line on rate hikes, the report said. Rates were relatively flat, except for periods in the spot market when capacity was scarce. The competitive truck-rate market had a bleed-over effect on rail intermodal: Though volumes rose 10.6 percent, strong price competition from truckers dampened intermodal rate growth, according to the report. Ocean volumes rose 4.5 percent, while domestic and international airfreight volumes each increased by less than 1 percent.
SHIPMENTS "SPRING" FORWARD
What happened during the March-May time frame? Not surprisingly, the industry struggled for much of the first quarter due to bad weather across much of the country. But as the elements abated in March, the economy and industry began to revive. Volumes during that month rose 10 percent year over year, partly because businesses that had held back due to the weather and the normal post-holiday malaise got back in gear.
The big surprise came in April. Based on the pattern of shipment activity over the past four years, April should have seen a contraction. Instead, business took off. Freight payments rose to their highest point in 15 years. Shipment volumes hit their highest levels since June 2011, according to the report.
The momentum continued in May. By the time the month ended, anyone who was moving freight for a living was sitting pretty. Shipments through the first five months were up 13.1 percent over 2013 levels. Payments jumped 11 percent during that span. The surges in March, April, and May led to the strongest freight demand since the recession ended, the report said. More tellingly—given that she generally does not go out on a limb unless she's sure it can't be cut down—Wilson forecast that 2014 would be the best year for freight since 2006, the industry's last good year before a protracted recession took hold.
Wilson's projections must be taken with a grain of hindsight. Other years in the post-recession era have enjoyed strong periods only to fade and fall flat. Even in 2013, a strong showing through the year's middle was spoiled by a weak fourth quarter that put a crimp in the overall results.
MONEY? WE'RE GIVING IT AWAY!
The story of 2013 reflects the demand for inventory and the absurdly low costs of carrying it. U.S. warehousing costs spiked as retailers incented by low interest rates bulked up on products ahead of a hoped-for fourth-quarter burst that never came, the report said. Warehousing expenses climbed 5.6 percent over 2012 levels as rising inventories sucked up available capacity. Demand for space during last year's fourth quarter reached the highest level on record, according to the report. The U.S. industrial vacancy rate ended the year at 8 percent, down from 8.9 percent in 2012.
Cheap money no doubt played a major role in inventory decisions, as businesses saw little economic penalty in ordering and warehousing products. The Federal Reserve's annualized rate for commercial paper—unsecured promissory notes with a fixed maturity of no more than 270 days—fell to 0.09 percent in 2013 from 0.11 percent in 2012. As of the end of May, the Fed's commercial paper rate had hit 0.08 percent. The "interest" category of the report fell 22.6 percent in 2013, an astonishing decline in light of already rock-bottom borrowing costs. Interest rate declines offset the cost of taking on more inventory, leaving overall carrying costs up just 2.8 percent over 2012 levels, the report said. However, the inventory strategy backfired when a disappointing holiday period left manufacturers with too much overhang, Wilson said.
Retail inventories increased 6.2 percent year over year, and inventory levels rose sequentially throughout 2013, the report said. Wholesale and manufacturing inventories rose by only 2.7 percent and 2.1 percent, respectively, indicating the upstream supply chain flow succeeded in keeping stocks low until late in the year.
The cushion of ultra-low interest rates was apparent in the report's analysis; if the annualized 2007 interest rate of 5.07 percent had prevailed during 2013, total logistics costs would have increased by $128 billion, Wilson found. All told, U.S. logistics costs reached $1.39 trillion, up $31 billion, or 2.3 percent, from 2012 levels. Costs in 2012 increased by 3.4 percent over 2011 levels.
Total logistics costs in 2013 as a percentage of gross domestic product (GDP) declined to 8.2 percent, according to the report. For the previous two years, costs as a percentage of GDP—a key gauge of the supply chain's efficiency in moving U.S. output—had been stuck at 8.5 percent.
In years past, a fall in the ratio was hailed as a sign the supply chain was becoming ever more efficient. That is no longer the case. Some of the year-over-year decline in 2013 was attributed to a 1.9-percent drop in "shipper-related costs" caused by companies increasing their supply chain productivity. Wilson said, however, that much of the decline reflected less freight spending and, by extension, less demand for logistics products and services.
STRONG DOMESTIC 3PL REVENUES
Revenues for the third-party logistics (3PL) sector rose 3.2 percent in 2013, down from a 5.9-percent year-over-year gain in 2012. Most of the softness was in the international sector, as a subpar global economic recovery and shippers' reluctance to commit to new business restrained results, the report said.
By contrast, the domestic 3PL market showed strong demand due to shippers increasingly turning to intermediaries to help optimize their supply chains across a broad front. Marc Althen, president of Penske Logistics, said the company last year experienced strong shipper demand for all of its services.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
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.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.