Faster Recovery Has Fizzled, Says Logistics Study’s Author

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WASHINGTON — The fast-paced recovery most had hoped for hasn’t materialized and economists believe the country will suffer slow growth for three years, according to a report on logistics from the Council of Supply Chain Management Professionals.

Manufacturing and business spending have carried the economy throughout the recession and recovery, but they were not strong in 2011, said Rosalyn Wilson, an economist and author of the 23rd Annual State of Logistics Report. “The longer the recovery takes without solid sustainable economic growth, the more reticent businesses become about hiring and investment,” she said June 13.

Wilson’s report said business logistics costs rose 6.6% in 2011 to $1.28 trillion, up $800 million from 2010. But the increase failed to match the $1.39 trillion spending level of 2007 from which the industry dropped during the recession. “In truth, we may not get back there for quite some time,” she said.

Wilson also highlighted that spending on third-party logistics providers rose 10.9% in 2011, while shipper-related costs rose 9% and spending on logistics management went up 4.9%.

3PLs generally act as a buffer during tough economic times, and activity in the sector actually has gone up, Joseph Gallick, senior vice president of sales at Penske Logistics, said in a panel discussion at the press briefing here unveiling the report. Shippers with product distribution centers are increasingly calling upon 3PLs to improve internal warehouse operations and design new operating procedures, he said.

This emphasis on 3PLs will help this sector lead the way to a full recovery in transportation, Ronald Marotta, vice president of origin cargo management at Yusen Logistics (Americas) Inc., a unit of NYK Group, said during the panel session.

The logistics report also stated that during 2011, railroads, trucking companies and 3PLs all were able to increase their rates and revenue. During 2011, trucking, which comprises 77% of the transportation component, posted a 6.2% increase, while the third-party and forwarding sector rose 9% and railroads surged 15%, Wilson said.

Intercity trucking posted a 6.9% gain to $431 billion, while the local delivery sector went up 4.7% to $198 billion, Wilson said. “The important factor is that this happened in a nonconstrained environment with only lackluster volume growth,” she said.

Wilson noted that with the exception of December, which was a record month for truck tonnage, volume was almost flat for 2011. Despite that, she said, truck rates rose between 5% and 15% across the country, with larger motor carriers on the high side and smaller companies on the low side.

Although trucking companies managed to get much-needed rate increases, many were challenged by higher costs that included driver pay, rising insurance premiums, diesel fuel price spikes and new equipment prices, Wilson said.

But Wilson warned that truck capacity is tightening for several reasons, which include driver shortages and new regulatory rules.

This capacity tightness already has led to delivery failures, Rick Sather, vice president for customer supply chain at tissue-maker Kimberly-Clark Corp., said during the panel discussion.

And because of capacity issues, many shippers that once eschewed intermodal are now embracing it.

“In the past, we may have been reluctant to use intermodal. But as we got into working with the railroads, we found the service is reliable for time-sensitive goods,” said Rick Jackson, executive vice president of Mast Global Logistics in Columbus, Ohio.

Mast Global is a division of the Limited Brands Inc. retail chain, the parent company of Victoria’s Secret and Bath and Body Works.