Big picture changes

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These are certainly exciting, yet challenging, times for third party logistics providers as we attempt to predict, analyze and adapt to the various forces that will affect our customers' supply chains in years to come.” -Joe Gallick, senior vice president of sales for Penske Logistics


It‘s no secret (unless you live under a VERY big rock) that we‘re in the middle of perhaps the worst global financial meltdown we‘ve experienced in modern times. This follows, of course, other big economic calamities - such as the run-up of oil prices to nearly $150 a barrel this past July, which pushed diesel and gasoline costs over $5 and $4 a gallon, respectively, throughout much of the U.S.


(Fuel costs, by the way, remains the number one concern of most trucking CEOs according to a new survey of 5,000 trucking executives conducted by the American Transportation Research Institute.)


So how is all of this impacting the global freight flows truckers rely on for business? I mean, let‘s face it - we live and work in a global economy in terms of trade (and financing - look how ALL the major banks from around the world are all screaming for government help now) so it stands to reason changes to fuel prices and available credit lines will be felt throughout global supply chains.


And you‘re right - though the developing trend lines may actually hold much promise for U.S. truckers, notes a recent survey of global logistics CEOs and unveiled at the Council of Supply Chain Management Professionals annual global conference in Denver this week.


According to the results of the “2008 3PL Provider CEO Perspective” produced by Northeastern University and Penske Logistics, third party logistics (3PL) revenue is definitely projected to drop as business is expected to fall off dramatically. However, a trend towards “reverse globalization” is picking up some serious steam - meaning more companies are relocating manufacturing and other work back into the U.S. and nearby countries (Mexico and Central America) rather than Asia due to rising global transportation costs. That may be the start of a silver lining for truckers - we‘ll have to see if that trend results in more domestic truck freight.


Dr. Robert Lieb, professor of supply chain management at Northeastern University's college of business administration, and Joe Gallick, senior vice president of sales for Penske Logistics, both said at the conference that the survey of 20 3PL CEOs in North America, 10 in Europe and nine in the Asia-Pacific region, revealed some of the lowest industry revenue projections ever seen in the 15-year history of these surveys, with rising fuel prices and slow economic growth the key challenges.


Still, 3PL executives report that they are holding their own despite the rocky times. “While nearly one-fourth of CEOs said that their organizations failed to meet 2007 revenue projections, almost 90 percent reported profitability last year,” noted Lieb. “Despite rising prices at the pump and a stagnating economy, these numbers indicate that global 3PL efforts to reduce costs, optimize networks through technological advances, and intensify the focus on customer selectivity are working - we will definitely see a continued focus in these areas well into 2009.”


Here‘s what the survey found this year:


Softer revenue projections. Though CEOs continue to be bullish about revenue growth prospects for their companies and the industry as a whole, projections have become increasingly conservative during the past several years, particularly in Europe.

-- One-year revenue projections for North American companies were reported to be 12.6 percent; in Europe 10.8 percent; and in the Asia-Pacific region, 21.4 percent. The three-year company revenue projections are 13.4 percent in North America, 10 percent in Europe and 23.1 percent in Asia-Pacific.

-- One-year industry revenue projections averaged nine percent in North America, 7.3 percent in Europe and 11.2 percent in Asia-Pacific. The average three-year industry projection for North America is 9.8 percent, 6.5 percent in Europe and 12.9 percent in Asia-Pacific.

-- Operating revenue in Asia-Pacific continued to grow in 2007. However, approximately 25 percent of North American and 30 percent of European companies surveyed did not meet revenue growth targets.

-- In North America, 19 of 20 companies reported profitability in 2007, while only two European companies reported they either broke even or were unprofitable.

-- There are mixed perspectives about the profitability of the industry in Asia-Pacific, with 22 percent of CEOs indicating they believe the industry either broke even or lost money during 2007.


Reverse globalization. This is big one where U.S. truckers are concerned. Due to rising costs of labor, the impact of high fuel prices on shipping costs, and continued concern around government regulations in Asia, 16 of the 39 CEOs involved in the surveys indicate some of their customers (the shippers that put the freight in motion) are changing their sourcing and manufacturing strategies and are moving operations away from Asia and “closer to home.” Hand-in-hand with reverse globalization, 3PLs and customers are gravitating toward expanding into nearby emerging markets where the cost of labor, shipping and land is less expensive.

-- 11 of 20 North American executives reported seeing a shift in customers pulling manufacturing back from Asia to North or Central America. In Europe, 20 percent of CEOs reported that some customers have moved operations from Asia to Eastern Europe. Similarly, in Asia-Pacific, one-third indicated that a number of customers have shifted manufacturing out of the region.

-- North American logistics providers are increasingly turning to Mexico and Latin America.

-- In Europe, CEOs are focusing on expanding services into Eastern Europe and Russia.

-- Though limited by infrastructure challenges, CEOs reported 2007 revenue growth in India of 48 percent, with a projected growth rate of 31 percent for the next three years.

-- Growth opportunities are emerging in other Asia-Pacific countries such as Japan, Thailand, Cambodia and Vietnam.


The “greening” of global supply chains continues. The 3PL industry has made significant strides in establishing environmental responsibility as part of broader corporate visions, with companies reporting numerous internal changes in response to these concerns. However, to date, the CEOs involved in the surveys believe these “green” capabilities are relatively insignificant in winning new business or retaining existing customers.

-- “Green” initiatives and environmental sustainability are considered unimportant when it comes to attracting or keeping 3PL customers. In Europe, 100 percent of respondents said “green” efforts are insignificant in winning and keeping business; in North America, 95 percent; and in the Asia-Pacific region, 89 percent.

-- Most CEOs indicated they are increasing spending on "green" initiatives primarily as a corporate social responsibility initiative as opposed to customer demand.

-- Though 79 percent of all companies surveyed have a formal sustainability program, 87 percent have a formal sustainability statement and 74 percent have appointed a formal leader of sustainability, less than three percent of customers globally have performance metrics for their 3PLs that track the 3PL's ability to help customers achieve its "green" goals.


Downward pricing pressure. As commoditization pressures mount in the 3PL industry, the role of procurement in contract negotiations continues to rise, and fuel costs increase, the companies surveyed cited downward pricing pressures as a continuous, major concern for the industry and noted a growing trend in branding as a way to differentiate.

-- 12 CEOs in North America, six in Europe and five in Asia-Pacific cited downward pricing pressures as one of the top three problems faced by 3PLs.

-- 92 percent of companies involved in the three surveys reported pursuing branding initiatives in the past year to help differentiate their companies from the competition.


Again, this is from the mouths of supply chain executives themselves - the folks on the ground arranging the movement of freight all over the world, companies such as: Cardinal Logistics, Caterpillar Logistics Services, Landstar, Menlo Logistics, Ryder, Schneider Logistics, Transplace.com, UPS Supply Chain Solutions, and YRC Logistics, just to name a few.


So while there are indeed big changes ahead that are going to shift global freight flows, they aren‘t all necessarily negative in nature where U.S. truckers are concerned. We‘ll just have to cinch the belts a little tighter and see where these trends start to take us.

What's Trucks at Work?

Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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