TopNews

Logistics Report: Get Used to the ‘New Normal’ of Slow Growth

June 19, 2013

By Oliver Patton

SHARING TOOLS        | Print Subscribe

Considering the implosion that occurred in the wake of the go-go years before 2007, the current condition of slow economic growth has a certain appeal.

“Other than the Great Depression, no other financial or economic event has created the level of upheaval and economic restructuring as the Great Recession has between 2007 and 2009,” writes Rosalyn Wilson in her annual State of Logistics Report.

In that period, households lost close to half of their net worth as millions lost jobs as businesses and inventories contracted, she reports in the analysis done for the Council of Supply Chain Management Professionals and Penske.

But while the slow growth that is the hallmark of the post-recovery period may be preferable by comparison, it is not without risks and drawbacks, particularly for transportation.

“The trucking sector has been in a delicate balance for several years now, just on the breach of experiencing capacity problems,” Wilson says.

Utilization rates are at all time highs, load volumes are rising, the driver workforce is aging and trucking is expecting the new hours of service rule that kicks in July 1 to cut into productivity and driver capacity.

The actual impact of the HOS rule will not be known until it is in effect, and it is likely to vary by industry segment, but Wilson cites estimates of productivity loss between 2% and 10%, and driver availability between 2% and 5%.

This development will take place in the context of the increased productivity that is the single biggest accomplishment resulting from the Great Depression.

“Everywhere we have learned to do more with less,” Wilson says.

But the increased productivity has reduced the need to rehire laid-off workers.

“I believe that we are experiencing a new order that is translating into the new way of life for the economy and the logistics and supply chain sectors for the foreseeable future.”

This “new normal” is characterized by slow growth as GDP increases hover between 2.5% and 4%, she says.

Other features include higher unemployment levels, and slower job creation. Higher healthcare costs will encourage businesses to keep their full-time staffs lean and rely on part-timers who don’t get benefits.

Freight service will be less reliable or predictable as volumes rise but capacity does not keep pace, she says.

Compared to the norm before the recession, growth in household net worth and disposable income will be slow, and as a result consumers will be more risk-averse.

“Another example of a changed trend is the phasing out of the traditional peak holiday season,” Wilson says.

Recent peak shipping seasons have either been almost undetectable or so protracted that they have had little impact on capacity and rates.

“We have changed the way we manage and distribute our inventory as online shopping has exploded. Along the way, we learned that real-time transparency in our distribution networks allows us to fulfill orders faster with less inventory.”

Here’s a quick rundown of Wilson’s key findings:

  • Logistics costs remain steady at 8.5% of GDP.
  • Per capita personal income rose 2.7% last year but household wealth is 6.7% below its peak. The income gain is tied to the performance of the stock market, which mostly benefits the well-to-do, while middle class wealth still resides in real estate – and housing values are 26% below their peak.
  • “Intermodal will continue to grow and is becoming the most efficient way to move goods in the “new normal.”
  • Revenues in the third-party logistics sector rose 5.9% in 2012, and companies are looking to outsource their logistics. “The domestic transportation management industry was the fastest growing economic sector, with gross revenues up 9.2%.”
  • Truck transportation costs rose just 2.9% in 2012. “With utilization rates at 95% to 97%, expected capacity pressures will push rates up quickly.”
  • Truck sales have gained but have not reached replacement levels. Used truck prices have soared and the supply has fallen.

You can download this report from our whitepapers section.

Comment On This Story

Name:  
Email:  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that every comment is moderated.

Newsletter

We offer e-newsletters that deliver targeted news and information for the entire fleet industry.



GotQuestions?

LUBRICANTS

The expert, Mark Betner from Citgo will answer your questions
Ask a question

Sponsored by


WHEEL ENDS SOLUTIONS

Wheel end expert Jeff Geist from STEMCO will answer your questions
Ask a question

Sponsored by

Magazine