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Transcript
Zac Rogers of Colorado State University
David Maloney, Editorial Director, DC Velocity :
Measuring the performance of our supply chains: What do the numbers reveal? Lift truck companies look to robotics for new designs. And the commercial real estate market hopes that e-commerce will spearhead market recovery.
Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome.
Logistics Matters is sponsored by Fortna. Fortna partners with the world's leading brands to transform their distribution operations to keep pace with digital disruption and growth objectives. Known worldwide as the distribution experts, Fortna designs and delivers intelligent solutions, powered by their proprietary software, to optimize fast, accurate, and cost-effective order fulfillment. For more information, visit Fortna.com.
As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin today, we look at the LMI. If you aren't familiar with that measure of the health of the supply chain, here's Victoria with today's guest to explain it all. Victoria?
Victoria Kickham, Senior Editor, DC Velocity :
Thanks, Dave. Our guest today is Zac Rogers. Zac is assistant professor of supply chain management at Colorado State University. And as you say, Dave, he's here to talk about the LMI, or the Logistics Managers' Index. The index is a monthly report that measures economic activity in the logistics industry, and it's produced by Zac and some of his colleagues from other supply chain management programs around the country. The most recent report was released this week, and we asked Zac to talk about that, as well as the history of the project.
So welcome, Zac.
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
Hi, thanks for having me.
Victoria Kickham, Senior Editor, DC Velocity :
I wanted to start by asking you if you can give us a little background on the LMI. What is it? What does it measure? Who coordinates the research? And how long have you been at it?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
Sure. So the LMI is the Logistics Managers' Index. And what that is, is a change index, where we survey, you know, between, like, a hundred, 200, high-level-director and above supply chain professionals. We ask, usually directors and above so that we have somebody who has a whole, you know, sort of a comprehensive picture of the supply chain. I used to, before I came back to school, I was a warehouse manager, and I can assure you, I did not have a comprehensive picture of the supply chain. So we ask, usually, director level and above, and it's every month. We build something called a change index, or diffusion index.
And it's very similar to what they do with the Purchasing Managers' Index, where essentially we ask about the change in eight different logistics metrics. So, inventory costs; inventory levels; warehousing capacity, prices, and utilization; and transportation capacity, prices, and utilization. And we say, is there—let's say for transportation prices: Are they going down? Are they staying the same? Are they going up? Those are the only three options. We then average those together to create our index values. And essentially, any value over 50 indicates that we're seeing growth. So this month, for example, I think it was 72, was our value for transportation prices. That indicates a pretty good rate of growth. On the other hand, you could have something less than 50, like we had in April, where it was like 34 or something. And that shows that transportation prices had just fallen off a cliff.
And so we put this out every month. And the team behind it is myself, Dale Rogers from Arizona State [University], Sengun Yeniyurt from Rutgers University, Steven Carnovale from Rochester Institute of Technology, and Ron Lembke from the University of Nevada, Reno. And we've been doing it since September 2016. So, next month's report—August's report—will mark four years.
Victoria Kickham, Senior Editor, DC Velocity :
Terrific, thank you. You've characterized, you and the other researchers have characterized, the index as a leading indicator for the economy. So I was hoping you could tell us, what does this mean for companies in the supply channel and for the broader business community? Essentially, how can they use the data you just described to us and apply it to their to business decisions?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
Absolutely. Well, we've, now we have, you know, quite a bit of data here. So, over the four years, we've collected over 4,000 responses. And what we have done is some econometric analysis, essentially looking at how do our predictors, you know, kind of show what might happen in the economy? So, how can we use logistics metrics in August to predict economic activity in September?
And we've shown pretty strong correlations with metrics like the Dow Jones Index, unemployment rates, even GDP. I will say that one of the the strengths here of this being an economic indicator is that it helps you know where things are going. Traditionally, we rely on indicators like, let's say, GDP. And GDP is a good metric, but it doesn't really tell you what's going to happen. GDP tells you what already happened. You know, we just had the second-quarter GDP numbers come out. So, you know, that tells us basically what happened in April, May, and June, and we just got that number at the end of July. That doesn't really tell us where things are going. That tells us what already happened. Trying to run a company or run a business by looking at GDP is sort of like running a—you know, driving a car by looking in the rearview mirror. I mean, it's good to know what's behind you, but it's not that helpful for knowing where you need to go.
Logistics metrics help us to know where the economy is going. And the reason they can do that is because logistics activity often happens upstream from the consumer. So, when you go to the store or you get online, and you go buy something, right—let's say you walk into a, you know, a big box retailer, buy a shirt or shoes or groceries or whatever—well, that apparel or those groceries had to get to the store. Right? They were probably in a number of warehouses, they were held in inventory somewhere. Maybe they went from a manufacturer to a wholesaler to a distribution center. Maybe it's been on—I mean, if it's if it's close, it's probably been on a boat, and a train, and a truck. And so, there's a lot of logistics activity that has to happen before the consumer can make that final purchase. And so, if we look at logistics activity, if it's going up, usually that means that retail sales are going up in the future. If they're going down, a lot times that means the companies are thinking, "Well, maybe sales aren't gonna be so high," and that we're gonna have lower levels of economic activity going forward.
Victoria Kickham, Senior Editor, DC Velocity :
Great, thank you. So then, with that in mind, what has the LMI, what is it revealing to us about economic activity and the performance of the logistics industry? You know, the most recent report and historically, if you can tell us,
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
Right. So, I think it's really interesting, especially if you look at some of the more dynamic indices.
So, you know, something like warehouse prices, those will go up and down, but they won't move as much, because that tends to be, you know, people, you get a warehouse, maybe on a three-year contract, or a one-year contract or something. So the prices don't go up and down quite as quickly.
Transportation does, though. And because that happens, you know, there's contracts but that's also very spot-market dependent, right? There's a lot of movement that happens quickly with transportation, and it's easier to build up new capacity of trucks. And so, if you look at transportation over time, over the four years [of] this index, it really tells the story of, sort of, the U.S. economy. We saw a big spike right when the tax cut got passed, and economic activity was really hot for a while. And this is true with the overall LMI as well. And then kind of last year, we saw a big slowdown in transportation prices. Really, it started at, sort of the end of 2018, beginning of 2019, when we started to see the trade war happening, and there was less international shipping, less things were moving around. We saw a big spike right at the beginning of coronavirus, when everybody's worried about having, like, toilet paper and eggs and stuff. Huge drop into April, when everyone had to stay home. And now we see it coming back up.
And usually, transportation prices are a forerunner of what's going to happen. Now, this month is a little different, I would say, because we see a big split in upstream and downstream firms—and we can get into that later if we want to—but basically, what we're seeing is that there's a lot more activity away from consumers happening right now, which probably—well, which may indicate that we're going to see—that we could be seeing parts of the consumer economy slow back down. Now, I wouldn't be surprised if that happened. You know, the jobs report came out again this week, and we had 1.2 million more people out of work and, you know, if the unemployment stuff dries up and all that, then we could see a big drop in consumer spending. And I think that's probably why we see the downstream firms—so, consumer facing firms like retailers, is what I mean when I say downstream—slowing down more, because they may be anticipating some slowdown in consumer spending.
Generally, though, the LMI is up this month. It was at a level of 63, which we haven't seen in about 18 months. So that's good for the logistics industry, right? So, what's really driving it right now is low capacity in warehousing and trucks. It's really hard to get a warehouse right now. I mean, companies are fighting each other over the space that they're going to have for the holiday season, partially because we have big inventories built up—so, you know, we have a lot left over from the shutdown, and now we're also building inventories up for Q4—and also because we know that commerce in Q4 is probably going to happen way more online than it has in the past. And in order to do that, you need more warehouse space, and you need more trucks. And so companies right now are being really aggressive about trying to reserve warehouse space [and] transportation capacity. And so we're seeing a big crunch in capacity, and therefore a big uptick in both utilization and price of warehousing, and at least truck transportation.
And so right now, it's interesting, because we may be going through a slight shift. Normally, logistics activity always predicts the macro economy. Right now, though, because we're so skewed towards utilizing logistic services—transportation and warehousing, because everybody's doing delivery for everything right now—for a much larger proportion of commerce, it might not necessarily predict the economy's gonna come roaring back. It is however, showing that logistics is continuing to be a bigger and bigger part of whatever piece of the economy is going to come back for the rest of the year.
Victoria Kickham, Senior Editor, DC Velocity :
Okay, great. Thank you. So you also asked, along those lines, I believe every month you ask participants about the future insights, or what they're expecting to happen. So do you want to give us a feeling for what these survey participants are saying about what may be ahead?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
Absolutely. And that's a great question, because I think that really corroborates what we just said about moving towards more logistics as a driver of commerce, and a heavier involvement as a proportion of all sales.
If we look at—remember, I said that any number above 50 means growth, and the highest any of these numbers can go is 100—both transportation price and inventory costs are predicted to grow at a number over 80 for the next 12 months. And so essentially what that means is, everyone thinks we're going to have more goods on hand; it's gonna cost us more money, because we don't have that much space; and transportation prices are going to go up.
The only one of our eight metrics that, right now, respondents predict will drop over the next 12 months is transportation capacity. Meaning that—now, that doesn't mean that, "Oh, there's going to be less trucks"—there's going to be more trucks in a year than there are now—but less of those trucks will be available. And so essentially, I think what we're seeing here is companies anticipating that they're going to have to utilize more and more logistic services to do the same, or maybe even a smaller amount of business, over the next 12 months.
Victoria Kickham, Senior Editor, DC Velocity :
Zac, if readers are interested in learning more about the LMI or participating in the survey every month, where can they go to get that information?
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
So, the website is [the-lmi.com]. You can also send me an email [zac.rogers@colostate.edu]. We couldn't get CSU. Apparently Cal State already had that by the time we were a university, so we have to be ColoState dot E-D-U. But if you send me a note, I'd be happy to talk to you, and certainly get you on our distribution list, and talk to you about being on our panel as well, if anyone in your readership thinks that's something they might want to do.
Victoria Kickham, Senior Editor, DC Velocity :
Terrific. Thanks so much. I should also mention that all that information is available in the resource area of many of your podcast platforms. So Zac, thanks so much for being with us today and explaining a little bit about the LMI. We appreciate it.
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
Thank you so much.
Oh, I should also mention, by the way, the the new reports come out the first Tuesday of every month. So our next report will be out, actually, on September 1. So this one I'm gonna have to stay up late on Monday to write, because I only have one day to it, I guess. But the first Tuesday of every month.
Victoria Kickham, Senior Editor, DC Velocity :
Great Thank you very much. Thanks again.
Zac Rogers, Assistant Professor of Supply Chain Management, Colorado State University :
Thank you.
David Maloney, Editorial Director, DC Velocity :
Thank you, Zac and Victoria.
Now let's turn to some other supply chain news from the week. Ben, you reported that a couple of large lift truck companies are partnering with robotics firms to develop more automation and material handling. Can you tell us what they're looking to accomplish with these new alliances?
Ben Ames, Senior News Editor, DC Velocity :
That's right, Dave. It's been a busy week in that area. The first one that we heard about, there was the German material handling giant Kion Group, which our listeners may remember as the large forklift manufacturer that acquired the U.S. systems integrator Dematic back in 2016. And Kion said that it had created a partnership with Quicktron, which is a small Chinese startup that makes autonomous mobile robots, or AMRs, that have become an increasingly common sight in distribution centers. And Kion said it also plans to eventually buy a minority stake in the company. The CIO—CEO, pardon me—said that the deal would improve its product range in [the] automated truck segment. And when he says automated trucks, he means lift trucks, not tractor-trailers.
Also this week, we heard that UniCarriers, which is also a major forklift vendor worldwide, said it had teamed up with two partners: the artificial intelligence firm called Brain Corp., which is a venture-capital-backed startup that's been making big strides lately—and also an automation provider called Dane Technologies. And UniCarriers' deal was supposed to provide, likewise, better automation and material handling, just as Kion's was. But UniCarriers was looking, really, at a different application, which is making what they call autonomous delivery tugs for moving inventory around within commercial retail sites, like grocery stores. And what UniCarriers is talking about is shifting sort of, boxes and crates of groceries, from stock rooms to the store shelves, in what the company calls the last 500 feet of the logistics journey.
David Maloney, Editorial Director, DC Velocity :
Did they give any reasons for why they're making these partnerships and investments now?
Ben Ames, Senior News Editor, DC Velocity :
They did. It all comes down to e-commerce and online shopping. That's a note that we've heard a lot of these companies saying often, in recent months and years, and it continues to be true now, even more than ever. That sector was already growing fast before the pandemic, but with so many people living and working from home during Covid, the e-commerce sector has grown even faster, and that's putting a lot of pressure on DCs and fulfillment centers to store and package and ship those orders.
We heard some proof point on that just a couple days earlier, when there was another handful of announcements that had to do with robotic providers. Those were a number of robotics providers who are working with systems integrators. They were Locus Robotics, working with Balloon One; another robot company called Geek+, working with Kuecker Logistics Systems; and the third one was Waypoint Robotics, working with Advanced Handling Systems. They all cited pretty similar reasons, that—Locus Robotics CEO Rick Faulk described it well when he said that robotics technology could improve efficiency and productivity at a time when e-commerce "continues to explode across all channels," and that kind of change in the load of the sector has meant that warehouse fulfillment is now a critical part of the economy.
David Maloney, Editorial Director, DC Velocity :
Very good. It ought to be interesting to see how those collaborations impact product design. Thanks, Ben.
And Victoria, you reported on the difficulties the commercial real estate markets face. What did you find?
Victoria Kickham, Senior Editor, DC Velocity :
Well, Dave, this very much echoes what Ben was just talking about, and the continued evidence we're seeing about the accelerating e-commerce trends, and the ways in which that issue is affecting supply chain.
So, the recent acceleration in e-commerce, as Ben mentioned, too, is being driven by the Covid-19 pandemic, which, as we've seen, devastated much of the economy as it's forced more consumers online and reduced foot traffic in stores. So, this week, commercial real estate firm CBRE published a mid-year outlook report showing that the rebound, or any rebound in commercial real estate, will be largely driven by demand for industrial and logistics space. And this is primarily because retailers and others will be looking for what the researchers term modern, Class A warehouses that are designed to meet growing digital and e-commerce demands.
Other factors come into play, of course, including, you know, the trend toward retailers adding more inventory to handle demand fluctuations, and manufacturers diversifying their supply chains to reduce their dependence on China. So both of those issues also create a need for more space. So those are the things that they're seeing—and more—in the report that, as I said, came out this week.
David Maloney, Editorial Director, DC Velocity :
Do the researchers say what a recovery in the market may look like?
Victoria Kickham, Senior Editor, DC Velocity :
Well, they say there are many factors at play, of course, but the bottom line is that it will take years for commercial real estate activity levels to fully return to a pre-pandemic state.
In the meantime, we're reporting on many projects underway that are designed to address this issue of accelerating e-commerce and digital business, as Ben just pointed out, as well. As just one example, retailer Urban Outfitters said this week it's going to build an 880,000-square-foot omnichannel, or sort of e-commerce distribution center in the Kansas City area. And it's designed specifically to help support its digital growth across all its brands. So that's just one example of many that we've been reporting on. So this is certainly something to watch.
David Maloney, Editorial Director, DC Velocity :
Well, it certainly impacts e-commerce, obviously, and shows the importance that supply chain has in impacting all of our lives during the pandemic and beyond. Thank you.
We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out.
And thanks, Victoria and Ben, for sharing highlights of the news this week.
Ben Ames, Senior News Editor, DC Velocity :
Thanks, David. It's always fun.
Victoria Kickham, Senior Editor, DC Velocity :
Yes, you're welcome.
David Maloney, Editorial Director, DC Velocity :
And again, our thanks to Zac Rogers of Colorado State University for being with us today. We encourage your feedback on this topic and our other stories. You can email us at podcast@dcvelocity.com.
And a reminder that Logistics Matters is sponsored by Fortna. Fortna partners with the world's top brands to transform distribution operations into competitive advantage. Expertise includes distribution strategy, DC operations, micro fulfillment, automation, and intelligent software. Distribution solutions designed today for tomorrow's challenges. Learn more about the distribution experts at Fortna.com.
We encourage you to subscribe to Logistics Matters on Apple, Google, Spotify, Stitcher, or wherever you get your podcasts. Just search for "Logistics Matters" to find us. Our new episodes are uploaded each Friday.
We'll be back back again next week with another edition of Logistics Matter, when our guest will be Thomas Goldsby of the University of Tennessee. We'll talk about the ongoing shortages of PPE—personal protective equipment—and what supply chains need to do to help. Be sure to join us. Until then, please be safe and have a great week.
