DC Velocity - July 2015

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Boeing’s corporate headquarters and where it still maintains sizable operations.

An increasing number of shippers are looking for hybrid solutions that allow them to take advantage of both for-hire and dedicated contract carriage, added Joe Carlier, vice president, sales for Reading, Pa.-based Penske Logistics. Penske has seen an increase of about 20 percent in the number of customers requiring such a solution, he said.

BNSF Railway is “in good shape” when it comes to capacity, velocity, and service, said Dean Wise, vice president of network strategy for the Fort Worth, Texas-based railroad.

Nevertheless, the rail industry, which has made record-high investments in infrastructure in the past few years, is concerned that port congestion could shift to the East Coast, Wise said.

Another worry is that federal funding for highways and intermodal connectors, together with a slowdown in the issuance of permits for various expansion projects, could make it more difficult to maintain the gains that have been made, he said.

Panelists predicted the effects of the recent congestion and delays at West Coast ports, largely caused by the nearly yearlong contract fight between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), would linger for some time to come. Ronald M. Marotta, vice president, international division for Yusen Logistics, a global freight forwarding and logistics concern in Secaucus, N.J., said the efficient and service-conscious Port of Savannah in Georgia has gained permanent new business from shippers that had a positive experience after rerouting freight that would normally have entered the U.S. via the West Coast.

Although activity at the West Coast ports is “more fluid” with “better velocity” than before, all stakeholders must continue working toward permanent improvement, Marotta said. “We’ve had some success, and I’m very certain next year will be better,” he said.

SOLID GROWTH FOR 3PLs, RAILS

The third-party logistics (3PL) segment turned in a strong performance in 2014 with net revenue—revenue after factoring in transportation costs—rising 7. 4 percent, according to the report. Revenues for domestic transportation management and dedicated contract carriage services rose by 20. 5 percent and 10. 4 percent, respectively, as tightening truck capacity drove demand for those services.

International transportation management and value-added
warehousing and distribution services each posted low-sin-
gle-digit increases. The overall 3PL market is expected to
rise in 2015 by 5. 7 percent. (The 3PL data in the report
came from Armstrong & Associates Inc., a consulting firm
that closely covers that segment.)

Rail intermodal volumes rose 10. 6 percent last year, continuing a pattern of solid multiyear growth for the sector as it on-boarded new business as well as conversions from truckload services. Rail carloads rose 4. 8 percent, while overall revenue increased 6. 5 percent. Ocean containerized imports and exports rose slightly year over year, while air-cargo revenue declined 1. 2 percent, paced to the downside by a 3.6-percent drop in international revenue. The current downward trend in exports will likely continue in the coming months as the strong dollar continues to make U.S.

products more expensive in overseas markets, Wilson said. “I don’t see exports recovering, at least before the end of the year,” she said.

INVENTORY COSTS ON THE RISE
Inventory carrying costs rose 2. 1 per-
cent last year despite a 4.8-percent
decline in the interest component as
interest rates remained at historically
low levels. Inventories increased by 2. 1 percent, sparking
a corresponding 1.2-percent rise in taxes, obsolescence,
depreciation, and insurance. Warehousing costs rose 4. 4
percent, capping the second consecutive solid year for that
industry as demand for warehouse space from e-commerce
players remained strong. U.S. retail e-commerce sales hit
$237 billion in 2014, up from $211 billion in 2013, accord-
ing to the report.

In the e-mail interview, Wilson forecast further increases in carrying costs as interest rates finally begin to rise and warehousing demand continues to escalate.

The inventory-to-sales ratio, which measures a business’s inventory investment in relation to its monthly sales, rose rapidly in 2014, the report found. At the end of 2014, the ratio stood at 1. 35, its highest level since late 2009. A rising ratio generally indicates declining sales or excess inventory levels. The rise was largely due to wholesalers and retailers ordering more goods in anticipation of labor- and con-gestion-related delays at West Coast ports, combined with slower-than-expected holiday sales, the report said. The wholesale and retail ratios leveled off, and the ratio for manufacturing began to trend downward in the first quarter of 2015, according to the report.

In an interview following the press conference, Wilson said she expects the overall inventory-to-sales ratio to decline. Rising costs across the board will give companies an incentive to get their inventory levels under control, she said.

“I’m concerned that inventories are as high as they are, but … manufacturers are using up the supplies that they have. Nobody is ready to make big investments in more inventory,” she said.