State of Logistics Report Advises Planning and Operating in 'New Normal'

G00254604

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Summary

Based on findings from the 24th Annual State of Logistics report, Gartner recommends that logistics professionals plan strategies around expectations of slow growth, widespread overcapacity and reducing high inventory levels.

News Analysis

Event

On 19 June 2013, the Council of Supply Chain Management Professionals (CSCMP) released its 24th annual State of Logistics Report. The report was delivered by its author, Rosalyn Wilson, senior business analyst at Delcan, with comments from a panel of industry experts. The report found that logistics costs as a percent of GDP in the U.S., at 8.5%, were the same in 2012 as 2011, and grew at about the same rate as GDP. Next year GDP growth is expected to be slower, at between 2.5% to 4%.

Analysis

Wilson’s “new normal” for the U.S. supply chain and logistics industry repeats last year’s trends, which appear sustainable, with slow growth forecast for the next few years. The industry has continued overcapacity in certain freight sectors and volatile demand, high inventory levels, and declining orders and backlogs in manufacturing.

E-commerce is driving new models of omnichannel operations, shrinking, combining and integrating business-to-business (B2B) and business-to-consumer (B2C) supply chains. Value-added warehouse and distribution services can help reduce this complexity by using the same fleets, facilities, staff and inventory to service customers.

Overall, growth and stability depends on the logistics market. For example:

  • Third-party logistics (3PLs) providers' transportation management systems (TMSs) are lowering costs for shippers by reducing backhauls and empty miles and improving routings.

  • Trucking is at near-capacity as the long-predicted truck driver shortage continues. A 100% turnover rate is typical; panel participants appeared impressed when Penske Logistics President Marc Althen said his company has only a 17% driver turnover. Carrier operations will be affected with hours of service (HOS) rules going into effect 1 July 2013, and the residual effects of Compliance, Safety and Accountability (CSA) regulations.

  • Ocean and air carriers will continue to have overcapacity. New and larger vessels are coming into the market. Air cargo is competing with passenger plane belly freight.

  • Intermodal and warehousing services remain strong.

Recommendations

Logistics professionals:

  • Drive logistics strategies from senior-executive levels and include IT, marketing/merchandising and other stakeholders. Don’t forget the impact promotions have on product demand.

  • Exploit ocean carrier overcapacity for rate negotiations. In the short term, investigate trading air freight for lower inventory costs. Take advantage of the lack of “holiday season” peak shipping rates in the "new normal."

  • Prepare for tough negotiations to secure truck capacity with the likelihood of higher rates.

  • To attract drivers, target critical changes in areas such as routes (for example, by planning routes that bring drivers home at night), pay scales, safety and equipment quality. Reach out to Penske and other successful transportation firms to find out their best practices.

  • Ensure that you use “friendly docks” where freight is quickly offloaded by warehouse staff, rather than drivers. Minimize driver wait times with appointment scheduling. Integrate or share appointment information and gain improved labor scheduling and equipment utilization.

  • Expect and plan for inland waterway infrastructure problems due to droughts and floods; include rail and truck delays due to bridge closings

  • In anticipation of increased interest rates, lower inventory levels starting with obsolete items and those that drive high insurance rates.

  • Address the well-publicized lack of trained available workers in the supply chain by seeking out the unemployed and returned military personnel in your town or region as potential trainees.

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