DC Velocity - June 2010

U.S. manufacturing, shipments gather steam

The nation’s manufacturing sector remained on a roll in April, with production expanding for the ninth consecutive month and the U.S. economy growing for the 12th straight month, the Institute for Supply Management (ISM) said in its May report card on U.S. industrial conditions.

At the same time, the ISM report found a continuation of trends that often accompany accelerated economic growth, namely slower delivery times by suppliers and higher prices paid for components.

ISM reported that the Purchasing Managers Index (PMI), its broad-est gauge of economic activity, hit 60. 4 percent in April. That’s up 0.8 percent from 59. 6 in March, which represents the fastest growth rate since June 2004. (Any reading above 50 percent indicates growth.)

In addition, a closely watched index of new orders hit 65.7 percent in April, an increase of 4. 2 percent over March. The index has averaged 61. 6 percent in the past 10 months, a sign of “extraordinary strength” in new orders, ISM said.

“Overall, the recovery in manufacturing continues quite strong, and the signs are positive for continued growth,” said ISM Chairman Norbert J. Ore in a statement.

Meanwhile, the pace of supplier deliveries slowed month over month, while order backlogs increased, indicating that shippers are having trouble getting goods to market in a timely fashion. In addition, 16 of the 18 industries responding to the ISM survey reported that they paid higher prices in April than they did in March.

Besides the ISM report, other data are pouring in showing that a
recovery has caught hold. A monthly index of freight expenditures
and shipments published by freight audit and payment firm Cass
Information reported its third consecutive month of growth in April.
The index, based on the expenditures and shipments of Cass’s
clients, came in at 1.689, while the index of shipments was reported
at 0.991. In March, the index of expenditures came in at 1.663 and
the expenditures index at 0.974. Tom Zygmunt, who manages the
index for Bridgeton, Mo.-based Cass, said it “would appear that ship-
ping is starting to pick up again.”
In addition, a forecast released by consultancy IHS Global Insight
predicted that global shipping across all transport modes will grow
8. 5 percent this year, reflecting a continued recovery in global trade
and commerce. The firm also projected total world trade to grow 7. 8
percent in 2011.

Trans-Pacific eastbound volumes from Asia to North America are expected to grow 10 percent in 2010 after a weak 2009, the firm said. Westbound traffic is expected to improve after two years of decline, though the firm didn’t disclose projected percentages.

It may take longer for trans-Atlantic volumes to return to previous peaks, according to the firm’s projections. Trade from North America to Europe is not expected to return to pre-recession levels until 2013, while westbound volumes won’t return to 2007 levels until 2015, IHS Global Insight said.

Carriers are responding to an upturn in cargo volumes by increasing capacity, the firm said. For example, the number of idled containerships in March stood at 9. 1 percent of the global container fleet, the lowest level since July 2009.

Arrow Electronics
expands reverse
logistics footprint

Electronics giant Arrow Electronics Inc. will acquire reverse logistics service provider Converge in a move to expand its presence in an operational specialty critical to the electronics industry.

Melville, N.Y.-based Arrow also announced it had acquired Verical Inc., an e-commerce portal that helps companies manage parts shortages by giving them a way to locate and buy components they need.

Arrow said it has closed the Verical transaction. Its purchase of Converge had not closed at press time. Arrow would not disclose terms of either transaction other than to say it would add 5 to 10 cents per share to its earnings.

Converge, based in Peabody, Mass., has offices in Singapore and Amsterdam, and support centers in Europe, Asia, and the Americas. Verical is based in San Francisco.

Ben Gordon, head of BG Strategic Advisors, a Palm Beach, Fla.-based mergers and acquisitions firm that handled the transaction, said that based on publicly available data, he believes the Arrow-Converge deal is the biggest so far in the logistics mergers and acquisitions category.

Gordon says Arrow will leverage Converge’s capabilities to expand its reverse logistics business. He said he doesn’t expect Converge to lose any clients as a result of the acquisition.

The purchases “complement Arrow’s global strategy by providing comprehensive services across the entire product lifecycle for suppliers and customers,” Michael J. Long, Arrow’s chairman, president, and CEO, said in a statement. “Reverse logistics is a rapidly growing area, and this acquisition builds on Arrow’s global capabilities as a supply chain and logistics expert.” An Arrow spokesman did not return a phone call seeking further comment.