Situation Unremarkable but Not Quite Dire

Situation Unremarkable but Not Quite Dire

With the economy still weak and logistics costs on the rise, the industry’s immediate growth prospects are uncertain

2011 was neither the best of times nor the worst of times for logistics, according to Rosalyn Wilson, senior business analyst with consulting firm Delcan and author of the annual State of Logistics Report. The one word which best describes the past year is “unremarkable.”

That pretty much sums up the current situation facing shippers hoping for any kind of improvement in the way their freight gets moved domestically. The vast majority (nearly 80%) of all freight carried in the United States still goes by truck, and as shippers know all too well, rates continue to climb, as they were up 6.2% in 2011. Costs, meanwhile, are rising almost as fast as rates, Wilson points out.

In her recent State of Logistics address on behalf of the Council of Supply Chain Management Professionals (CSCMP) and Penske Logistics, Wilson observed that “capacity in the trucking industry is in a tenuous equilibrium state. True shortages are rare, but available capacity is not abundant.”

Trucking costs, on average, rose 6.2% over the past year although volumes remained basically flat. If and when the economy fully recovers, the resultant tightening of capacity could become a significant problem, particularly if the driver shortage worsens. Even in a stagnant economy, over-the-road trucking is not an attractive occupation for the emerging Generation Y workforce, and various regulatory pressures (e.g., shorter Hours of Service rules; CSA scores) will only exacerbate the situation.

Shippers, Wilson urges, should begin to make contingency plans for the day they cannot hire a truck to move their freight. One of those contingency plans, she suggests, should include an intermodal strategy. “With respect to capacity, railroads are in very good shape from an infrastructure, equipment and personnel basis,” she points out. On the other hand, shippers have to be feeling a bit overwhelmed by the rapid increase in rail freight pricing, which rose by 21.8% in 2010 and then by another 15.3% in 2011. Even so, the railroads have gained market share, particularly on the intermodal side as medium-sized trucking companies have teamed with the railroads to avoid the heavy costs of expanding their fleets and recruiting drivers, Wilson says.

Ocean carriers, meanwhile, had a disappointing year in 2011. As Wilson puts it, “Peak season basically did not materialize because a lagging mid-year economy did not support stocking up for holiday sales.” While exports were up 6% for the year, imports grew by just 3%. There is “tremendous excess capacity” for ocean carriers, but some carriers continue to add to their fleets. Barge traffic on the inland waterways dipped slightly compared to 2010, and infrastructure problems such as aging locks and sediment build-up have led to numerous delays, Wilson observes.

Air freight revenues were down overall in 2011 by 2%; breaking it down further, domestic air cargo revenues decreased by 3% while international cargo was down less than 1%. “Extra capacity in the industry led to falling load factors and downward rate pressure,” Wilson says, adding that “high inventories have curtailed spending on air freight for replenishment.”

Summing up, Wilson points out that “the faster paced recovery we have been watching for has failed to materialize, and most economists feel that we are in this for the long haul.”

Uncertainty over the fate of the economy throughout the European Union, coupled with Washington’s focus on reelection rather than getting work done, are adding to an overall feeling of malaise throughout the country. Even so, Wilson is cautiously optimistic that “we’re making some headway and not falling so far back each time now. It is still going to be slow and steady.”

Related Editorial:

Special Report: The State of Logistics in the U.S.

Forget Distribution Center Shape. Think Inside the Box.

Three Keys to Quick Savings on Shipping

Commodities Sourcing: A Sport of Timing, Luck and Talent

Material Handling Contributes to 16.5% Rise in Equipment Financing in 2011

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