22nd Annual State of Logistics Report: A bumpy ride
July 01, 2011 - LM Editorial
When the transportation and logistics market’s chief prognosticator, analyst Rosalyn Wilson of Declan Consulting, gave Logistics Management some early insight into her findings for the 22nd Annual State of Logistics Report (SoL), she was still wrestling with a title.
“We had given some thought to calling this report ‘Coming in on a wing and a prayer,’ but felt that would be too negative,” says Wilson. “After more thought we decided to call it “Navigating through the recovery.” But after the official release in mid-June in an event sponsored by the Council of Supply Chain Management Professionals (CSCMP) and Penske, it was clear that no matter how you slice and dice the data she’s collected, shippers are going to be in for bumpy ride in terms of rates, capacity, and service over the next six to eight months.
“An unstable rate and capacity environment hurt both sides, including the freight intermediaries, and it’s not going to get much better for a while,” says Wilson.
In her SoL report, which is designed to neatly summarize the previous calendar year in logistics and transportation spending, Wilson says that 2010 was certainly a better year for carriers and third party logistics providers (3PLs) than 2009—but it didn’t turn out to be all that we had hoped. The recovery from the Great Recession has proven to be more elusive and prolonged than any other in our history, and the slow growth presented another year of challenges for the logistics industry, she notes.
“Volumes firmed up early in 2010, but dropped off in the second half,” says Wilson. “Demand for capacity began to equalize with available space in many sectors, but rates continued to be constrained. Inventories began to climb , and retailers pulled back on their ordering because spending did not expand as expected.”
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According to Wilson, the economy began to falter in the second half of 2010 as the contribution from the various stimulus packages, put in place to jump start the first year of the recovery, began to fade. “We may have hit a wall,” says Wilson.
All four major transportation modes are scrambling to make adjustments during this period of volatility, and shippers may be forced to do more with less as a consequence.
Economy: Thwarted charge in 2010
Macroeconomic trends have a profound impact on the growth of logistics and transportation markets. And, consumers are not leading the charge as they have in other economic recoveries due to the fragile state of their personal wealth, says Wilson.
“Unemployment is still pervasive, new jobs are being created at a rate that does not even cover population growth, the housing market hasn’t rebounded in most areas, foreclosures continue, home prices are still deflated, and fuel and food prices have been steadily rising,” says Wilson. “Personal net worth plummeted for most people, causing them to adjust their view of the economy and their spending patterns,” she adds.
In the three years prior to the recession, the personal savings rate in the U.S. averaged 1.9 percent, which is in line with a steady decline over the last 20 years, according to the SoL report. Since the beginning of 2008 and through 2010, the personal savings rate has averaged 5.3 percent, which is still significantly lower than the 9 percent to 10 percent average before 1990. Consumer spending and retail sales grew modestly in 2010, not igniting as expected. Most of the increase in retail sales came in the form of sales of fuel, automobiles, and food.
Manufacturing and business spending were the bright spots during much of 2010. Industrial production was up 5.3 percent in 2010, after declining 11.2 percent the year before. Industrial production and manufacturing for businesses was up, while consumer goods production was almost flat. Capacity utilization increased from 69.2 percent in 2009 to 74.5 percent in 2010, while consumer spending and retail sales grew modestly.
“These were all signs that the economy was strengthening, but by mid-year there was a slowdown and it never fully reached that level of momentum again,” says Wilson. And there were other encouraging stories as we entered 2011, says Wilson. For instance, the auto industry was rebounding, and recently Chrysler paid off its TARP loans seven years ahead of the due date.
“Given the weather conditions in most of the country at the start of 2011, most measures would call the first quarter a strong one for the logistics industry,” says Wilson. “In the last few months of 2011, however, volumes have been eroding, along with other key economic indicators, and there are signs that the economy is stalling and predictions for a strong 2011 may fall short.”
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