Subscribe to our free, weekly email newsletter!


2012 State of Logistics: Slow and steady

The logistics industry has yet to climb back to the profitability it hit in 2007–the precipice from which it dropped during the recession. According to the report’s author and industry analysts, it may be a while until the overall industry hits full stride again.
By Patrick Burnson, Executive Editor
July 01, 2012

Energy question missing
Conspicuous by its absence in this year’s SoL was any detailed analysis of the volatile energy rates and expenses over the past year. Derik Andreoli, Ph.D.c., senior analyst at Mercator International, a logistics and infrastructure advisory, and Logistics Management’s popular Oil & Fuel columnist, notes that shippers should be asking a few questions about this aspect of the overall state of logistics

“Oil and fuel markets are extremely complex, and forecasting price moves requires insight into both supply and demand for oil, diesel, gasoline, and dollars,” says Andreoli. “Since the beginning of May, crude oil prices have fallen by a staggering 22 percent. This decline was largely due to the rapidly evolving opinion among Wall Street oil traders that tight oil markets were set to soften.”

But he notes that this sentiment is certainly not out of line with the news flowing from Europe or the recent lackluster performances of emerging markets—especially China.

“As Greece continues to dance with default and expulsion from the Eurozone, Moody’s has downgraded France’s credit rating, and bond yields across Portugal, Italy, Greece and Spain have skyrocketed,” says Andreoli. “As borrowing becomes more expensive, the only choices that are available are to cut spending or leave the Euro. Neither of these options is attractive.”

Andreoli adds that the problem with austerity is that spending—be it by the government, consumers, or businesses—greases the wheels of growth. The problem with leaving the Euro is that the value of the drachma would plummet, causing Greece to muddle through a prolonged recession.

“The irony, of course, is that the underperformance of Eurozone economies has kept the value of the Euro suppressed against the level that it would be if every Eurozone economy performed similarly to Germany.” As a consequence, he says, Germany’s exports remain cheaper than they would otherwise be. “Germany is the only country that is strong enough to pull the Eurozone out of its slump, but seeing that the country has for years benefitted from a dysfunctional Euro, it won’t likely throw out a life preserver until the alternative to ‘muddling through’ looks relatively more attractive.”

Andreoli says that as the Eurozone skirts recession, European oil demand remains suppressed. So too are European imports from China and other emerging markets, which suppresses economic activity in these countries.

“Of course, MENA (Middle East and North Africa) oil consumption was also significantly reduced as the Arab Spring chopped away at economic activity leaving a wide swath of economic disruption across the region,” says Andreoli.

Road ahead
U.S. consumers, meanwhile, are benefiting from the slow but steady decline in gasoline prices, and retail analysts expect that growth will resume and should pick up through the fall. “This economy thus far is working like an old machine with many fits, starts, and even some sputtering,” says Jack Kleinhenz, chief economist with the National Retail Federation (NRF).

The NRF reported that May retail sales, which exclude autos, gas stations, and restaurants, were down 0.3 percent on a seasonally-adjusted basis from April and up 4.8 percent on an unadjusted basis annually, marking the 23rd consecutive month is retail sales growth.

This observation resonated with Wilson, who says that this year’s SoL suggests a slow rebound. “Manufacturing has slowed, but not stalled, and new orders have been picking up,” she says. “Industrial output has been stuck at one level for a couple of months, but inched up in May.”

Wilson agrees that consumer confidence had been climbing, but observes that it has been in decline for the last three months. “Unemployment had dropped several times, but rose again in May. The transportation sector, however, added 36,000 jobs in the same month—almost half of the 69,000 jobs added last month,” she adds.

Meanwhile, another recent study indicates that logistics managers regard the reduction of overall supply chain costs as the “number one” priority in the coming year. IDC Manufacturing Insights’ 2012 US Supply Chain Survey found that the vast majority of respondents are still aggressively attacking expenses.

“According to our findings, the key supply chain challenge facing all manufacturers today is the juxtaposing of complex and extended supply networks with increasingly fast and volatile demand networks,” says Simon Ellis, IDC’s supply chain practice director. “At the same time, shippers are dealing with the increasingly ineffective role for inventory as a way to buffer cadence mismatches.”

Indeed, nearly 55 percent of the survey’s respondents suggest supply chain agility is the second priority, and 52 percent suggest improving product quality and safety is the third most important priority. When asked to rate the level of importance of new technology areas, big data/analytics came out on top, followed by mobility, cloud computing/software as a service and social business tools.

While manufacturers face increasing complexity as customer demand diversifies and supply globalizes, supply chain organizations are adapting to respond to requirements such as complex and extended global supply networks and growing regulation—particularly in the area of traceability.

To address these challenges, the IDC study found that manufacturers continue to increase the amount of low-cost country sourcing. Analysts recommend that shippers “revisit” the profitable proximity sourcing approach and how that concept, supported by IT, can ensure sourcing decisions to create a competitive edge.

“While there is anecdotal evidence to suggest that 2012 may indeed represent the most challenging time in the history of the manufacturing supply chain, significant opportunities also abound in terms of the supply chain this year,” says Ellis.

 

About the Author

image
Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

The Department of Commerce reported that January retail sales were up 0.2 percent compared to December and up 3.7 percent annually at $449.9 billion, and the NRF reported that January retail sales, which exclude automobiles, gas stations, and restaurants, rose 0.6 percent over December and 1.4 percent compared to January 2015.

On the freight shipments side, Cass reported that January shipments––at 1.025––trailed December by 1.3 percent and January 2016 by 0.2 percent. These declines were less than the 4.9 percent drop from November to December, though, and January shipments still topped the 1.0 mark for the 65th straight month in December.

The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported this week that its Freight Transportation Services Index (TSI) saw a 0.4 percent decline from November to December, its second straight decline on the heels of a 1.0 percent decrease from October to November.

Carloads saw a 11.7 percent annual decline at 241,680, and intermodal containers and trailers rose 10.5 percent to 262,830

An amendment to the International Maritime Organization’s Safety of Life at Sea convention will go into effect requiring all shippers (importers and exporters) to certify and submit the Verified Gross Mass – the combined weight of the cargo and the container – to the steamship line and terminal operator in advance of loading the container aboard a vessel.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2016 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA