One of the factors leading to the downbeat “State of
Logistics Report” released last month by the Council of
Supply Chain Management Professionals was a reluctance
on the part of retailers to restock their inventories. And
there is mounting evidence that the inventory rebuild of
2009–2010 that fueled the nation’s economic recovery has
run its course, at least for now.
One such indication came June 8 with the release of a
monthly index that monitors truck drivers’ diesel fuel purchases. That measure, the Ceridian-UCLA Pulse of
Commerce Index (PCI), showed a sequential decline of 0.9
percent in May, following a 0.5-percent drop in April. The
index, which tracks drivers’ fuel card swipes as they transport
raw materials as well as intermediate and finished goods to
businesses and consumers, has declined every month this year
except March and has fallen in eight of the past 10 months.
Ed Leamer, an economist at UCLA’s Anderson School of
Management who directs the report in conjunction with
payroll giant Ceridian Corp., said in a statement that the
economic recovery started in July 2009 but lasted only until
the following June. Since then, he said, the economy has
“been idling, not powering forward.”
Craig Manson, senior vice president at Ceridian, said
restocking activity, which surged in 2009 and part of 2010
as companies rebuilt stocks pared sharply during the reces-
sion, has moderated to normal levels. However, the still-
weak construction and housing industries have failed to
pick up the slack. As a result, the economy has effectively
stalled, Manson said.
Has the great inventory rebuild
run its course?
LITTLE RELIEF IN SIGHT
The impact of inventory contraction is also reflected in a
sobering May 31 report from New York City transport
investment firm Wolfe Trahan. In the report, the firm said
its prediction several months ago of just 1 percent “freight
GDP” growth—which would be about half of even the
most downbeat projections for overall GDP growth this
year—“no longer feels quite so unrealistic.”
The firm, co-run by long-time transport analyst Ed
Wolfe, wrote that shipping volumes in 2010 were stimulat-
ed by “faster inventory turns” as shippers scrambled to
move goods to market and replenish depleted stocks.
However, the oil price spike that began late last year has
since compelled shippers to cut transportation costs and
preserve inventory, the firm said. With an inventory slow-
down turning into a potential “headwind” for volumes
sometime this year, Wolfe Trahan expects traffic flows to
decelerate on a year-over-year basis.
In addition, a monthly index published by freight audit
and payment firm Cass Information Systems Inc. showed a
go figure …
$31.3 billion
The amount Union Pacific has spent on infrastructure, rolling stock, and terminal capacity
improvements since 2000.
SOURCE: UNION PACIFIC
0.2-percent decline in May shipments over April figures, as
orders and shipments of durable goods flattened out. Year-over-year shipment growth stood at 9. 6 percent in May,
down sharply from the 12.3-percent year-over-year gains
reported in April, said Cass. The Bridgeton, Mo.-based
firm bases the index on the expenditures and shipments of
400 clients.
The Institute for Supply Management’s widely followed
monthly manufacturing report showed a plunge in new orders
in May and a five percentage point drop in manufacturer
inventories. Inventory being held by customers remained “too
low” for the 26th consecutive month, the May report said.
Bradley J. Holcomb, chair of the manufacturing report,
said the decline in manufacturer inventories reflects how
quickly producers are adjusting their inventories to meet
rapid changes in demand. “I am seeing that myself at my
own company,” said Holcomb, whose main job is serving as
chief procurement officer at dairy giant Dean Foods.
Holcomb also said customer inventories remain especially lean as retailers shy away from adding to stocks for fear of
getting stuck with surplus goods. “Retailers have a wait-and-see attitude,” he said in an interview. “They are holding
back and keeping a tight rein on inventories.”
HOLDING OUT HOPE
To be sure, not everyone sees the current numbers as the start
of something bad. Ben Cubitt, senior vice president of consulting and engineering at Frisco, Texas-based third-party
logistics service provider Transplace, said his customers are
providing mixed to favorable responses when asked about economic activity. Some say they’re doing very well and staying
busy, while others report steady conditions, with a dip in activity followed by a rebound to normalized levels, Cubitt said.
“Most seem to say things are about level—that they are
not growing much, but not retreating either,” Cubitt said.
In a mid-May survey of 500 shippers, Morgan Stanley &
Co. said respondents still reported “robust volume growth,”
as well as tightening truck capacity and significant year-over-year rate increases. The firm said that orders continued to outpace inventory, suggesting that “inventory
restocking could offer another source of upside throughout
the year, but is not imminent.”
—M.S.
