Recession Spurs Shippers to Reduce Costs, Improve Operations, Prepare for Recovery

This story appears in the Sept. 28 print edition of Transport Topics.

CHICAGO — The economic downturn presents an opportunity for shippers to pare costs and strengthen transportation and distribution operations, industry experts said here at the Council of Supply Chain Management Professionals’ annual conference.

“The pendulum has swung in favor of shippers,” said Matthew Menner, senior vice president of Transplace Inc., a transportation management firm in Plano, Texas.

He and other officials said shippers are taking advantage of excess capacity to negotiate lower rates, cut jobs and explore ways to work more closely with suppliers to reduce supply-chain costs.

Besides seeking rate reductions, Menner said, shippers are considering pooling shipments and adjusting delivery schedules to make transportation networks operate more efficiently.

“There’s a heightened level of collaboration between business and customers,” Menner said.

John Ferguson, a vice president of Schneider Logistics Inc., said falling ocean shipping rates have led to a revival of transloading activity at West Coast ports.

The National Retail Federation estimates that import cargo volume at all major U.S. ports in 2009 will be the lowest since 2003.

Revenue growth for logistics companies, based on a survey of logistics executives in North America, Europe and Asia, is expected to slow sharply this year, compared with 2008.

Robert Lieb, a professor of supply chain management at Northeastern University, said the survey results “underscore the caution and anticipation felt by logistics executives as they wait for signs of a global economic recovery.”

“Despite the bearish growth projections and acknowledgment that consolidation, pricing pressures and operational reductions were, and may continue to be, necessary adjustments, the opportunities for improved collaboration with customers, expansion into emerging markets and the possible addition of new management talent have many excited about the next several years.”

Joseph Gallick, senior vice president of sales at Penske Logistics, Reading, Pa., said the downturn has heightened interest in outsourcing transportation and distribution services by companies, such as food processors, pharmaceutical suppliers and chemical firms that have not outsourced logistics services to the same degree as large manufacturers and retailers.

“I am cautiously optimistic,” Gallick said of the outlook for the economy. “We are planning for the recovery to be long and slow as long as unemployment remains high and questions remain about whether credit markets are really unfrozen.”

Companies that can improve their supply chains now will have a competitive advantage when business recovers, said Bruce Tompkins of Tompkins Associates Inc., a Raleigh, N.C., consulting firm that helps retailers, manufacturers and distribution firms benchmark logistics performance.

“The smartest companies are shifting to recovery mode before their rivals by developing and implementing a strategic plan that anticipates the end of the recession and positions them for future growth,” Tompkins said.

The timing of the recovery will depend on the sector, he said.

“Food and beverage is already seeing some growth,” Tompkins said, “but high-tech and retail will need to wait awhile before their industries experience more positive results.”

Arthur Mesher, chief executive officer of Descartes Systems Group Inc., a transportation software firm based in Waterloo, Ontario, said the current environment of rising costs and lower shipping volumes creates a need for what he calls “federated networks,” in which companies can share data to better manage the flow of goods.

“The need for immediate cost-reduction and productivity improvements is radically changing how systems are sold, delivered and deployed,” Mesher said in a presentation.

A focus on cost cutting by shippers, however, could make it more difficult for firms to invest in technologies that would allow such cross-enterprise collaboration. Such investments were “ruthlessly trimmed” during the previous recession of 2001, said Mary Holcomb, an associate professor at the University of Tennessee. Holcomb and Karl Manrodt of Georgia Southern University conduct an annual study of trends in transportation and logistics.

The focus on controlling inventory also quickly faded after the 2001 recession, said Belinda Griffin, a senior manager at Capgemini Consulting, with U.S. headquarters in New York, and a sponsor of the trend study.

Dawn Salvucci-Favier, a senior director of JDA Software Group Inc., Scottsdale, Ariz., said firms do appear to be spending money to expand technology systems already in place, with more shippers acquiring software as a service to avoid paying large licensing fees associated with the acquisition of systems.

JDA Software announced on Sept. 21 that it would make its transportation management software available to companies as a managed service.