DC Velocity - July 2011

newsworthy

State of Logistics Report: A fallen soufflé

THE AUTHOR OF THE 22ND ANNUAL “STATE OF LOGISTICS Report,” Rosalyn Wilson, took the show on the road late last month, speaking June 23 in Atlanta at the ninth annual eyefortransport 3PL summit just eight days after unveiling the results of the long-awaited study. The report, which was produced for the Council of Supply Chain Management Professionals and sponsored by Penske Logistics, was released on June 15 in Washington, D.C.

When she finished her Atlanta presentation, the gloom in the packed
room was so thick one could cut it with a knife. One of the panelists appear-
ing with Wilson, Richard Hamilton, first vice president of the industrial
property development giant ProLogis, said simply, “I’m depressed.” Wilson,
aware of the impact her downbeat forecast had on the throng’s mood, joked
that “maybe I should be handing out Prozac at the door.”
The results for 2010 were probably more deflating than the findings in
the 2009 report. Then, the industry was struggling through the worst
downturn in decades, and a bad report was largely expected. However,
many looked to the 2010 edition to lift spirits, especially since the econo-
my rebounded so strongly in the first half of the year. But the report
showed that the recovery began losing steam by the third quarter, and fol-
lowing an upward spike in the first quarter of 2011 that raised hopes for
a resurgence, the economy stumbled again in the second quarter.

Perhaps no one was more disappointed than Wilson herself. “I hoped to come before you with different results,” she told the group. In fact, as she was surveying top executives through the fall of 2010 and winter of 2011, she got mostly positive feedback. When she went back to the executives in mid-spring to finalize the report, she heard a different message. “We have hit a wall,” she said.

The report, which quantifies the value of logistics to the overall economy, showed that logistics costs in 2010 reached $1.2 trillion, an increase of $114 billion—or 10. 4 percent—from 2009 levels. Transportation costs rose 10. 3 percent to $768 billion, due to the cumulative effect of higher freight volumes, fuel surcharges, and rate increases that were largely confined to the railroads.

Logistics costs accounted for 8. 3 percent of the nation’s gross domestic product (GDP) in 2010, compared with 7. 8 percent in 2009. In prior years, a ratio below 10 percent would have been seen as a sign of more efficient management of supply chain operations. But Wilson said the single-digit ratios of the past two years reflect the impact of sub-par volumes and freight rates rather than greater operating efficiencies.

Inventory carrying costs totaled $396 billion last year, up 10. 3 percent from 2009 levels. A 6-percent drop in warehousing costs was more than offset by increases in taxes and obsolescence, depreciation, and p. 18

The president of Hytrol Conveyor Co. said he remains cautiously optimistic about prospects for his industry, despite reports of double-digit order and shipment growth, and a solid recovery from the depths of the 2008–09 recession.

Gregg Goodner told attendees at Hytrol’s executive summit and sales meeting in Little Rock, Ark., that the company has experienced “steady growth” over the past two years despite still-challenging economic conditions.

“The way we do business now is not
the same as it was in 2008,” Goodner
said. “We have to turn over new rocks
and do things differently today.”
Goodner also cautioned against com-
placency. “If we are just sitting back
waiting for the economy to come back,
we are in trouble. We have to look for
new opportunities,” he said.

Goodner said Hytrol’s adoption of lean manufacturing processes has enhanced efficiencies and helped make May the most successful month in the company’s history.

Goodner cited industry statistics from the Conveyor Equipment Manufacturers Association that showed first-quar-ter bookings rose 41 percent compared with the first quarter of 2010. Shipments were up by 46 percent, the trade group said.

For the year, Goodner said he expects sales increases of about 11 percent industry-wide, with similar growth expected in 2012.

“Even though the economy has not come back yet in all parts of the country, integrators of material handling [systems] are feeling very good about where things are,” he said.

The three-day Hytrol event was aimed at helping distributors and systems integrators find ways to improve their operations and grow their own businesses.