The Future Looks Bright Ahead (If You're Still in Business)

July 1, 2010
With inventories cut to the bone, a return to prosperity will require opportunistic managers.

Managers responsible for their company's supply chains must have been giddy in 2009, considering the incredible fire sale going on last year. It cost on average 20% less to transport their goods than it did the previous year, as virtually every mode of transportation dropped their prices in a fire sale to end all fire sales. Trucking was off by 20.3%, rail costs were down 20.6%, ocean costs declined by 21.6%, and air freight was off by 27%. Any company with a significant amount of freight that needed to be moved was sure to find a bargain no matter which mode they chose.

But there's the rub, of course. The same recession that saw a precipitous decline in logistics revenues also saw a steep drop in sales for the manufacturers, wholesalers and retailers who rely on transportation. If there aren't any customers for manufactured goods, then there won't be any need to transport the severely diminished inventories in the warehouses. Operating in survival mode, manufacturers shut down entire production lines, while retailers altered their product mix to favor lower cost products.

In short, as transportation consultant Rosalyn Wilson describes it, the recession “had a negative effect on all segments of the logistics system.” Wilson, author of the annual State of Logistics Report, released by the Council of Supply Chain Management Professionals, points out that the logistics industry was more profoundly affected by the recession than other industries due to a ripple effect — the downturn in each individual sector resulted in a loss in shipment volume.

Inventories climbed, filling warehouses and retail shelves, she points out, while “orders for new goods dropped off substantially and carriers competed for a dwindling volume of shipments.” In fact, companies cleared inventory “at a rate not seen for 30 years,” Wilson says, “but were still unable to keep ahead of the drop in sales.

Both manufacturers and retailers were reluctant to order new goods and materials until late in 2009, when warehouses and distribution centers were very low on stock.” I can imagine a lot of heads nodding in agreement with Wilson's observations, since she is describing the business environment where MHM's readers ply their trade.

We've historically paid close attention to the State of Logistics report, dating back to the days when Bob Delaney (Wilson's predecessor) delivered the findings, because it steers clear of sugarcoating and the fanciful predictions and sticks to reality. This year's report is no exception, as Wilson makes clear in her closing analysis. “For those that have survived the recession, the future looks bright,” she says, but then adds, “For those that have emerged in a seriously weakened state, your future will depend on your ability to capitalize on growing market opportunities to bolster your position. Capacity is going to tighten and rates are going to rise.”

Wilson recommends that companies should offer assistance (i.e., renegotiated terms) to the weaker links in their supply chain to ensure their survival. And that cuts both ways — maintaining the viability of your key suppliers will help ensure that your company remains viable, too.

This month, a familiar face returns to MHM in the person of once-and-future-editor Tom Andel. Many of you no doubt remember Tom's award-winning stint in the early 2000s as MHM's chief editor, and we are delighted to welcome him back to the fold.

I'd also like to thank Mary Aichlmayr, MHM's former chief editor, for the passion and dedication to excellence she brought to the magazine. Mary is moving on to a new career in marketing, and we wish her only the best.