21reporte Estado Logistico

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21st Annual
State of Logistics Report

The Great Freight Recession
June 9, 2010 National Press Club, Washington, DC
Presented by Rosalyn Wilson P: 703-587-6213 E: Rosalyn@rwilson-inc.com
This document is available from our site and provided for your personal use only and may not be retransmitted or redistributed without written permission from the Council of Supply Chain Management Professionals (CSCMP). You may not upload any of this site's material to any public server, online service, network, or bulletin board without prior written permission from CSCMP.
Introduction
The cost of the U.S. business logistics system declined 18.2 percent in 2009, the largest drop ever since the series was started (Slide 1). Business logistics costs fell to $1.1 trillion, a decrease of $244 billion from 2008. Combined with the drop in 2008, total logistics costs have declined almost $300 billion during the recession. In 2009, logistics costs as a percent of the nominal Gross Domestic Product (GDP) hit a historic low at 7.7 percent.
Both major components of the cost models declined in 2009. Inventory carrying costs fell 14.1 percent in 2009 (Slide 2). The decrease in carrying costs was due to both a 4.6 percent drop in inventories and a 10 percent drop in the inventory carrying rate. Transportation costs plummeted 20.2 percent from 2008 levels. Trucking, which comprises 78 percent of the transportation component, declined 20.3 percent. All other modes combined declined 20.5 percent.
The recession which began in December of 2007 and continued through more than half of 2009 had a negative impact on all segments of the logistics system. The logistics industry felt the negative effects of the recession more than most other industries because the downturn in each individual sector translated into a loss in shipment volume. Inventories continued to climb for the first half of 2008 filling warehouses and retail shelves. In mid-2008 bloated inventories began to be drawn down until they reached pre-recession levels in late 2009. Throughout the period, orders for new goods dropped off substantially and carriers competed for a dwindling volume of shipments. Spot rates for some modes fell below costs, further adding to the financial decline.
Excess capacity in the system was rationalized or reduced, particularly in the trucking and air cargo industries. Some was the natural result of carriers that went out of business, but much of the reduction was the result of business decisions. The tenuous business climate and tightened credit controls will make it difficult to rapidly expand capacity for the remainder of 2010. The economy is showing stronger signs of recovery as we move into the second half of 2010 and it is likely that we will have capacity problems in some areas by years end.
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The Business Logistics System2009

After rising over 50 percent in the five years leading up to the recession, total logistics costs fell in 2008 and 2009. Transportation costs were down over 20 percent in 2009 because of low volumes and extreme rate pressures. Interest rates continued their downward spiral, while inventory levels dropped off, leading to another double digit drop in inventory carrying costs. Logistics as a percent of our nominal GDP fell to 7.7 percent to the lowest level measured since the series started in 1981 (Slide 3).
[Note: The Department of Commerces Bureau of Economic Analysis issued a revised Gross Domestic Product series recently. The revisions are incorporated into the accompanying table entitled The Cost of the Business Logistics System in Relation to GDP and in other calculations used in this report. The revisions are minor, but they do cause rounding differences in some cases.]
Although virtually every company involved in the supply chain cut costs and increased productivity, this precipitous drop was caused more by the rapid decline in shipments and the cutthroat rate environment. Revenues for most carriers were depressed in 2009 and some, like ocean carrier Maersk, had losses for the first time in their firms history. Many carriers are forecasting a better revenue picture for 2010 however. Inventories have hit rock bottom, orders are being placed and commodities are moving again. Inventory levels have been inching up. In addition interest rates have risen in each of the last three months. With volumes picking up, capacity tightening, and higher rates on the way much of the drop in transportation costs should reverse itself although it will probably be 2011 before we see pre-recession levels. Likewise, inventories are on the rise again and the Federal Reserve will not be able to hold the line on interest rates indefinitely. Already inching up, interest rates are expected to pick up by the third quarter of this year.
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All business inventories dropped for the first three quarters of 2009 and then rebounded slightly in the fourth quarter. Inventory levels remain below pre-recession levels. The average investment in all business inventories (agriculture, mining, construction, services, manufacturing, wholesale, and retail trade) dropped to $1.85 trillion in 2009, losing $89 billion (Slide 4). Businesses cleared inventory at a rate not seen for thirty years, but were still unable to keep ahead of the drop in sales. Both manufacturers and retailers were reluctant to order new goods and materials until late in 2009, when warehouses and distribution centers were very low on stock.
Compared to the 2001 recession we were quite slow in responding to the mounting inventories. In 2001, which was a much shorter recession, the response was immediate with inventories drawn down gradually. In the recent recession inventories continued to climb until about midway through the period and then they plummeted. There are several reasons for the slow response time, not the least of which is the impact of long off-shore supply chains. Orders in the pipeline placed months earlier were fulfilled and delivered well into the recession despite market conditions at the time of delivery. Retailers responded the quickest, adjusting for falling consumer demand in early 2008. Wholesalers and manufacturers did not begin to respond until mid-2008. [Note: the recession periods used for this report are those used by the Federal Reserve.]
After several years of relatively level performance, the inventory-to-sales ratio began skyrocketing from 1.26 in late 2007 to 1.48 in early 2009. This mirrored the steep rise in inventories as sales dropped off. By first quarter 2009 we had cleared out significant inventory and sales began to slowly build in the latter part of 2009. By the end of 2009 the ratio had returned to 1.26 and the most recent ratio has even dropped to 1.23 (Slide 5). Most of the stabilizing effect resulted from the draw down of inventories, which once completed, helped sales levels more evenly match the remaining inventories. The ratio has continued to slide because sales are picking up, but there has not been any substantial restocking of inventory. Most firms looked to lean inventory practices to contain costs and drew down even their safety stocks.
Retailers responded to the drop in consumer spending by changing their product mix to skew it towards lower cost products. Product selection has shrunk in many stores as
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the number of like products carried by an outlet has declined. Grocery stores and alcoholic beverage outlets fared better than the restaurant industry as consumers cut back on dining out. Even in this market, lower priced items performed better than higher priced ones. For example, beer sales dropped in bars and pubs but increased in take-home outlets. Sales of imports dropped off but local craft beers and domestic brands sold well.
Manufacturers followed very lean ordering practices in 2009. Often suppliers were called on to hold the supplies in their inventory to reduce the manufacturers exposure. Their suppliers followed suit and cut back on what they held in inventory. Several manufacturers have reported having to shut down production lines because they lacked the necessary materials and parts to produce finished products. We could see more of this because of lengthy delivery times.
The cost of carrying inventory is determined not only by the value of private inventories, but also the interest rate for holding those inventories. We used annualized commercial paper rates for the interest component in the SOL model. The annualized rate fell to .26 percent in 2009, ranging from a high of .4 percent early in the year to .13 percent in December (Slide 6). Interest rates were cut again in January 2010 to 0.11 percent, but have risen for the last three months and now sit at .21 percent. The result of lower inventories and historically low interest rates is an 89 percent drop in the interest component of carrying costs.
Taxes, obsolescence, depreciation, and insurance were down 6 percent in 2009. Insurance costs, which had been volatile several years ago, remained even with little or no adjustment. Taxes, depreciation, and obsolescence were down marginally due to lower inventory levels.
The cost of warehousing fell 2 percent in 2009. Warehouses were still full in early 2009 because retailers could not move their goods. By midyear, inventories had been liquidated or consolidated freeing up warehouse space. Vacancy rates rose as inventories fell in 2009. There was more significant pressure on rents in the latter half
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of the year. Inventory recovery and growth in exports as much of the rest of the worlds economies recover as well were welcome signs for this segment late in 2009. The forecast for vacancies going forward show a continued rise due to weak demand, but improvement by year end. Rents should continue to be depressed until demand picks up towards the end of this year. The tightened credit market and high vacancy rate have substantially reduced new construction. Interestingly defaults and foreclosures on warehouse properties have been few. Lenders have preferred to extend and modify terms on expectations that the market will rebound.
Transportation costs declined 20.2 percent in 2009 (Slide 7). Carrier revenues, which are used to measure the cost to shippers, fell in 2009 ranging from a 4 percent drop in pipeline revenues to a 27 percent drop in air cargo revenues. With the exception of oil pipelines all modes experienced double digit losses.
Trucking, the largest component of the transportation sector, has been one of the hardest hit modes throughout the recession, dropping 20.3 percent in 2009. On a volume basis, truck tonnage was down 8.7 percent in 2009, over already depressed 2008 levels. There was abundant capacity competing for fewer and fewer loads. The fierce competition led to price wars which often dropped rates below cost on the spot market. Faced with management mandates to cut costs, many shippers abandoned long standing relationships with carriers in favor of the spot market or the use of 3PLs. 3PLs pressed trucking companies hard to lower or at least hold rates. Fuel prices continued to be volatile, but fuel surcharges played less of a role in revenue generation. Industry average lengths of haul are continuing their long term downward turn, while long-haul truck ton-miles have also fallen off. These shifts are the result of higher usage of intermodal and more regionalization of distribution centers in response to higher fuel costs.
Truckload industry capacity is still dropping at unprecedented rates. In 2009, freight volumes were declining faster than capacity so there was no incentive to keep equipment. Many trucking companies used the economic downturn to evaluate their business model and most chose to reduce their fleet size to operate more leanly. In
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addition to planned reductions in capacity, about 2,000 trucking companies went out of business in 2009, removing still more trucks. Trucking acquisitions and mergers have increased as companies in good financial health look for ways to strengthen their market position. Donald Broughton of Avondale Partners tracks trucking industry bankruptcies and capacity changes. He has forecast that another 2,000 firms will be driven out of the industry in 2010 because of higher operating costs and low demand for freight services. According to the American Trucking Association (ATA) the nations freight pool contracted by 12.5 percent in 2009. Heavy truck utilization is currently at about 75 percent which is not enough to generate new truck sales.
The poor market for trucking services and falling revenues have led many companies right to the brink of failure. Lenders have extended credit terms rather than repossess the assets over the last two years, but these practices are coming to an end. Also, many companies put off preventative maintenance and now are facing the consequences of those actions. Some will simply be unable to pay for needed repairs and upkeep. The Federal Motor Carrier Safety Administration will step up enforcement of safety later this year with a new federal program, Comprehensive Safety Analysis 2010 (CSA 2010). Beginning in November, all carriers will be evaluated and scored on a variety of safety measures and corporate record keeping. Poor scores will result in warning letters to fix problems or even loss of operating authority. The compliance costs for this program will be high for some carriers.
Another capacity issue which will rise up again is driver shortages (Slide 8). In 2005 the ATA commissioned a study that measured a shortage of 20,000 long haul truck drivers. Since 2007 about 142,660 drivers have exited the field. Since shipments were plummeting at an even faster rate during the same period, the driver loss was not a cause for concern. In fact carriers were able to pull back on some of the programs they had instituted to retain and attract drivers. By mid-2009 many job-seekers from other sectors of the economy (particularly construction) were making the driver market quite competitive. As the economy improves it is expected that a large percentage of the drivers hired during the recession will return to their previous occupations. About one in six truck drivers is age 55 years or older. These drivers will need to be replaced in the
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next ten years. UPS, for instance, recently said it expects 25,000 of its baby boomer drivers to retire over the next five years. Less than one quarter of current drivers are
under 35 and the industry has been attracting a declining share of young new entrants. The lack of drivers will also slow the return of trucks to the marketplace. CSA 2010 will also have some impact on driver availability as closer attention is paid to hours of service. Another factor hindering driver recruitment is the reduction in driver pay during the recession. To rein in costs carriers reduced pay by 6.6 from the third quarter of 2007 through the first quarter of 2010 according to a survey conducted by Morgan Stanley. The low pay and unattractive working conditions are causing some would-be job seekers to stay on unemployment. In a recent online seminar, Noel Perry of FTR Associates predicted driver shortages beginning in 2010 and continuing into 2012 about 400,000 by next year!
The cost for rail transportation was down 20.6 percent in 2009. Carload traffic was down 16.1 percent and intermodal traffic declined 14.1 percent2009 was the worst year on record since 1988 when the Association of American Railroads (AAR) began tracking the data series. Every major commodity group experienced a decline, including a 10.9 percent drop in coal carloadings, which accounts for nearly half the carloads carried in 2009. Coal shipments were down primarily due to a drop in demand for electricity because of the slow economy, a milder winter and comparatively lower natural gas prices. Other big losers were construction related products such as lumber and wood, down 33.3 percent; crushed stone, gravel and sand, down 22.1 percent; and stone, clay, and glass products, down 21.7 percent. Motor vehicles and parts fell 33.6 percent. Much of the decline in intermodal traffic during 2009 is attributable to the 33.8 percent drop in trailers hauled. Container traffic was down only 8.7 percent. Fuel costs were down 53.3 percent for Class I railroads due to a significant decline in usage because of traffic levels and a 43.2 percent drop in the average price of a gallon of diesel fuel. The absence of fuel surcharges and aggressive pricing strategies dropped revenue per ton-mile to 3.01 cents per ton-miles in 2009 from 3.34 cents in 2008. The good news is that fuel as a percent of operating expenses went from 25.8 in 2008 to 15.3 in 2009.
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The recession has had an impact on rail capacity as well. As of December 2009 28.8 percent or close to 450,000 freight cars were in storage. In mid 2009 the number of rail
cars in storage climbed over 500,000 to almost 32 percent of the fleet. Just for comparison, normally two to three percent of freight cars are in storage when the economy is healthy. Several thousand locomotives have also been parked to wait for the recovery. The Association of American Railroads has estimated that the industry now has approximately $43 billion dollars in idle assets. The big difference between the loss of capacity in the trucking sector and the loss in the rail sector is that the rail equipment has been merely sidelined and is readily available to return to service when demand rises. In 2009 BN, UP, and CSX purchased 331, 127, and 2 new locomotives respectively. NS added 23 rebuilt units to its fleet.
Warren Buffets Berkshire Hathaway, Inc., bought Burlington Northern Santa Fe Corporation in November 2009 in what was called an all-in wager on the economic future of the United States. In a similar move, just last week Caterpillar, Inc., expanded its rail business by acquiring Electro-Motive Diesel (EMD), one of the two major US locomotive manufacturers.
Costs for the water sector fell 21.6 percent in 2009 (Slide 9). Traffic through the nations ports contracted again in 2009, with all top ten ports (except Oakland) registering a decline in TEUs moved. The ocean carrier sector has been damaged during the recession and will take many years to recover. Ocean carriers reported big losses in 2009. Rates, particularly spot rates, were pushed down below costs for much of the year as desperate carriers tried to fill their ships. Rates did begin to rise by the end of 2009 and have continued to strengthen in the first half of 2010. The Drewry Container Freight Rate Insight report showed a growth of 18 percent in spot rates from July to September, followed by a 6 percent rise through November. December 2009 marked the first year-over-year increase in rates since 2007. Average ocean rates in late 2009 were still 20 percent below the peak in 2007. It is essential for the industry to raise rates to ensure their future viabilityand from all accounts they are holding firm on rates.
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Roughly one quarter of the world fleet was laid up at some time during 2009. Ships have been scrapped and fleets trimmed. However this did not dramatically impact
industry capacity, because of the delivery of new ships that were in the construction pipeline. Asian carriers have been strategically reducing the number of containerships they own to shore up flagging balance sheets. Seven major Asian carriers have disposed of about 16 percent of their fleet, more than half sold for scrap and the remainder sold in the second-hand market.
Carriers have been reluctant to bring mothballed ships back on line while they are still sailing at less than full capacity. Routes have been curtailed and shipping times have lengthened. Many shipping lines have adopted the practice of slow steaming or cutting back on speed. This has the twin benefits of saving fuel and reducing emissions; however, shippers are not thrilled with the results: eroded on-time reliability. According to Drewry Shipping Consultants, only 53 percent of the 1,600 ships they tracked in the final quarter of 2009 arrived by the scheduled arrival day. Shippers are facing longer delivery times with less predictability than before the recession. Carriers began returning laid up containerships to service in the second quarter of 2010. In addition 25 new vessels have come on line.
Ton-miles carried on the nations inland waterway system were down 15 percent in 2009. (Slide 10) The Army Corps of Engineers Monthly Tonnage Indicator shows that for most of 2009, levels were lower than in any of the preceding three years. Figures have been released for the first three months of 2010 and the trend is off to a good start with March levels higher than in either 2008 or 2009. This segment of the industry remains hampered by aging infrastructure and failing locks. There has been little or no infrastructure investment in riverside facilities to increase traffic or to add a significant amount of container shipments via barge. Updating and transforming the waterway system would add vital capacity to the overall system.
The recession significantly slowed the pace of shipping on the Great Lakes in 2009 with ton-miles down 32 percent. The major US-Flag carriers hauled 66.5 million tons of dry-bulk cargo in 2009, a decrease of 34.2 percent compared to 2008. Coal cargo was
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down 17 percent compared to a year ago because of reduced demand from power plants and lower exports to Canada. There was a 28 percent decrease in limestone
cargo, a commodity used by the construction industry. The Lake Carriers Association reports that the reduced demand forced seven carriers to cease operations in 2009.
Oil pipeline volumes were depressed in 2009, but rates which are regulated for the industry went up. The result was a decline of 4 percent in pipeline costs. Air freight revenue declined 27 percent in 2009. The industry was hit very hard during 2008 and the first half of 2009. Cargo traffic declined 11 percent in 2009, which is the largest drop on record, even eclipsing the decline during the 2001 recession. There was a severe drop off in demand of this higher priced premium service. In fact, even parcel carriers like UPS and FedEx reported that customers were shifting to lower cost ground options to save money. The pickup in the latter part of the year reflected the lengths businesses were willing to go to in order to bolster their inventory. One of the factors leading to the peak season surge was the fact that Chinese factories were not able to respond to orders fast enough to use sea freight because they had shut factory doors and sent home their workforce. Most carriers do not see this as a permanent shift however and do not have plans to add capacity or recommission parked freighters.
During the downturn many carriers decommissioned aircraft and removed them from their fleets. The Air Transport Association (IATA) says that 12 percent of cargo capacity was lost in 2009, with widebody freighter capacity down 22 percent. The air freight industry is experiencing one of the most intensive shortages of capacity. This has led to spiraling rates and a shipment backlog. This was welcome news to the beleaguered carriers who had been hit with high fuel costs and low demand. In the last quarter of 2009 rates doubled and ended almost five times higher than the start of 2009.
Freight forwarders fared well during the first half of the recession, taking advantage of abundant capacity to broker lower cost moves for their clients. By the second quarter in 2009, they too were feeling the impact of severely reduced volumes and rates with nowhere to fall. Armstrong and Associates report that 3PLs lost ground in 2009 after modest gains in 2008. The domestic transportation management segment was off 14.7
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percent, while the international segment fell 25.2 percent. The dedicated contract carriage segment declined 15.2 percent in 2009 and the value added warehousing and
distribution services segment went down 0.7 percent. This market segment was less concerned with asset utilization than the carriers, and profited from carriers who wanted business at any cost. Many shippers are returning to their core carriers and repairing relationships neglected during the recession. Tight capacity restraints in ocean, truck, and air may push more shippers to engage 3PLs in the near term. Shipper related costs rose 2 percent and logistics administration declined 18.5 percent.
Here is how the performance of our business logistics system looks for the last two decades, between 1989 and 2009 (Slide 11). Inventory carrying costs as a percentage of GDP declined about 52 percent in the last twenty years. Transportation costs as a percentage of GDP is 19 percent lower than it was twenty years ago, but most of that drop is in 2009. Again, let me reiterate that I expect the downward trend to return to previous levels within two years.
Although GDP declined in 2009, logistics costs shrank even more (Slide 12). Looking at the numbers we see that the growth in logistics cost has out paced the growth in GDP prior to the recession, but GDP has risen faster than logistics costs throughout the recession.
Looking Ahead
The best we can say for 2009 is that it is good that it is behind us. Lets look to the future which is improving as each month passes. There are strong signs in the first half of 2010 that the economy is recovering and most economists believe we have passed the point where another drop in growth would cause a double-dip recession. Speaking on CNNs State of the Union program, director of the White House Economic Council Lawrence Summers said: the trend has turned, but to get back to the surface, weve got a long way to go.That is a good summary of the path before us.
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Although indicators are moving upward we will still experience a drop or two along the way (Slide 13). The GDP growth estimate for the first quarter of 2010 was recently revised downward to 3.0 percent reflecting a downward adjustment in consumer spending and an upward change in imports. The consumer spending revision caught economists by surprise because the overestimation was in consumer spending on services, not goods. Specifically, consumers didn't use as much housing, utilities, food services, and accommodations as originally estimated. The downwardly revised components are an indicator that consumers have not gotten much more comfortable spending on dining out and traveling. The Conference Board Consumer Confidence Index increased in May, its third consecutive monthly gain, although still weak by historical levels. Consumer apprehension about current business conditions is evaporating and being replaced with a gaining expectation for further improvement.
The Federal Reserve has been able to hold interest rates in check because inflation has stayed low, coming in at just 2.2 percent in Aprila slight drop from March. However, Atlanta Federal Reserve President Dennis Lockhart said last week that the Fed may have to raise its key lending rate even though unemployment remains high.
Industrial Production has been steadily climbing since bottoming out mid-2009. Manufacturing output climbed 1.0 percent in April for a second consecutive month and was 6.0 percent above its year-earlier level. The increases in manufacturing were broadly based across industries. Capacity utilization for manufacturing moved up 0.8 of a percentage point to 70.8 percent, a rate 8.4 percentage points below its average from 1972 to 2009, but 5.7 percentage points above its low point in June 2009. The production of consumer goods increased 0.2 percent, the result of higher output of consumer nondurables. This sector has yet to see the growth necessary to boost the economy. New orders for manufactured goods were up 1.2 percent in April, considerably less than the 1.7 percent rise economists had expected. New orders have been up twelve out of the last thirteen months. All of this months increase came from the transportation sector, with a 228 percent increase in aircraft and parts orders, and a 2.7 percent rise in orders for new automobiles.
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Unemployment is one of the key areas of the economy that is not likely to turnaround this year (Slide 14). Although jobs are being created, they are not increasing fast enough to absorb those seeking jobs. New jobs are also attracting discouraged workers to return to the labor market to seek employment, inflating the unemployment rolls. During the recession there were tremendous gains in labor productivity. Although the first quarter 2010 figures for productivity growth were recently revised downward to an annualized rate of 2.8 percent, labor productivity has risen 6.1 percent over the past four quarters. This rate of expansion is nearly three times the average rate of expansion and the fastest growth since 2002. Productivity often increase at the end of a recession as employers push workers to higher output levels to put off hiring new workers. This productivity jump is good for raising the standard of living, but it has a negative effect on jobs creation and contributes to rising unemployment. The for-hire transportation industry laid off over 300,000 employees during the recession. Over 64 percent of those were in the trucking industry, which shed 15 percent of its employees.
In 2010 truck drivers are being hired at a very slow rate. Carriers are still setting high standards and trying to hire experienced drivers. The rail industry has rehired workers in every month in 2010, but is still down 20,600 workers. Air employment is rebounding slowly with carriers still trying to wring more productivity out of their existing workforce.
Freight volumes have been generally on the rise in 2010 (Slide 15). Truck tonnage has grown over 6.5 percent in the last seven months. Truck shipments are picking up in most market segments and there are already reports of equipment shortages. Rates still have not taken off. Rail carloadings have been somewhat disappointing as we entered 2010. Weather played a significant factor in the first few months of the year, with the snowstorms in the northeast contributing to the loss in February. Rail intermodal loadings have also been depressed, again suffering from the impact of the weather. Railroads have experienced enough growth in business to begin rehiring workers and taking freight cars out of storage. In May, freight cars in storage represented 23.8 percent of the fleet down from 28.7 percent in January. Port traffic has recovered somewhat in the first few months of 2010. Global Port Tracker has forecast that TEUs will be up 25 percent for the first half of the year over levels just a
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year ago. Rates are up almost 60 percent in some markets and there is little room to negotiate with ocean carriers who are standing firm in order to recover from rock bottom rates in 2009. The air cargo industry has experienced a great resurgence in 2010, with international traffic growing at a 26 percent annualized rate in the first quarter and domestic traffic rising at about half that rate. April international figures declined 0.5 percent because of the shutdown of European air space in response to the volcano eruption. Shipments are up primarily on the strength of semi conductor shipments. The industry trimmed inventories and needed a quick response when demand returned. Shipments are expected to drop off soon as inventory levels get more in line with sales. The revenue picture for air cargo carriers has rebounded from the very disastrous first quarter 2009 results, but still remains about five percent below pre-recession levels.
Summary
Summarizing, US business logistics costs were equal to 7.7 percent of nominal GDP in 2009 and dropped down to $1.1 trillion (Slide 16). Transportation costs declined 20.2 percent, while Inventory carrying costs fell 14.1 percent. Transportation costs now account for 4.9 percent of nominal GDP, while carrying costs account for 2.5 percent. Interest rates, which plummeted in 2009, combined with lower inventories to push down logistics costs. Trucking sector costs comprise about half of all business logistics cost. This sector has been hit particularly hard by the recession and fell 20.3 percent in 2009. The other modes combined posted a combined 20.5 percent drop.
Capacity continued to exit the industry in 2009, particularly in the trucking segment. The rail, air, and ocean sectors laid up equipment at rates not seen in decades. The trucking, ocean, and air industry also permanently disposed of assetseither selling them as scrap or selling them in the second-hand market. Investment in new capacity all but dried up during the recession and is just now starting to pick up again. We can expect some capacity restraints by year end, with both equipment shortages and driver shortages.
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The railroad industry has abundant capacity and can readily bring it and workers back on line as demand grows. The ocean carrier industry is still way over capacity and will continue to increase capacity as new ships are delivered. They are using artificial means to constrain capacity to shore up freight rates. Unfortunately this has resulted in longer shipping times and less delivery time reliability. The air cargo industry removed much excess capacity and is already seeing some backlog in shipments. While there is parked capacity available, much of it is smaller, older aircraft. It will take time to rebuild and the industry is waiting to be certain that growth rates are sustainable before investing. The capacity in the trucking industry is now much more in line with demand, but as demand grows, there is not sufficient parked capacity to quickly respond. There is a large inventory of used trucks which could be picked up, but tight credit is going to hamper large investments in new trucks. Truck drivers will also be in short supply.
For those that have survived the recession, the future looks bright. For those that have emerged in a seriously weakened state your future will depend on your ability to capitalize on growing market opportunities to bolster your position. Capacity is going to tighten and rates are going to rise. Shippers would be wise to be first at the table negotiating rates and capacityguarantee a minimum level of business in return for guaranteed carriage or limited rate hikes two or three years out. Consider offering assistance (perhaps in the form of new terms) to weaker links in your supply chain to ensure their survival. To repeat the observation made earlier, we are on our way up, but far from breaking the surface. We need to continue to mind the bottom line and keep costs in check.
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21st Annual State of Logistics Report
The Great Freight Recession

National Press Club Washington, DC June 9 2010 9,
Rosalyn Wil R l Wilson
US Business Logistics Costs
1.31 1.18 1.01 $ Trillions 0.97 0.92 0.95 1.03
1.39
1.34 1 34 1.10
1
The US Business Logistics System Cost is the Equivalent of 7 7 Percent of Current GDP in 2009 7.7
$ Billions Carrying Costs - $1.851 Trillion All Business Inventory Interest Taxes, Obsolescence, Depreciation, Insurance Warehousing Subtotal Transportation Costs Motor Carriers Truck Intercity Truck Local Subtotal Other Carriers Railroads Water Oil Pipelines Air Forwarders 368 174 542 50 29 10 29 28 146 9 42 TOTAL LOGISTICS COST 1,095 5 233 119 357
Down 14.1%
(International 25, Domestic 4) (International 14, Domestic 15) Subtotal
Down 20.2%
Shipper Related Costs Logistics Administration
Down 18.2%
2
Logistics Cost As A Percent of GDP
10.3 9.5 8.8 8.6 8.8 9.5
9.8
9.9
9.3 7.7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
3
Total US Business Inventories

2300
Billions of Dollars US Recessions
2100
1900
1700
1500
1300
Recession Dates: 3/1/2001 to 11/1/2001 and 12/1/07 to 7/1/09
Source: US Department of Commerce, Census Bureau S D fC C B
4
The Inventory to Sales Ratio Has Returned to Pre-Recession Levels Pre Recession
1.50 1.45 1.40 1.35 1.30 1 30 1.25 1.20 1 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: US Department of Commerce, Census Bureau S D fC C B
5
US Average Commercial Paper Rates Continued to Fall in 2009

Billions of Dollars
7 6 5
Percent
4 3 2 1 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Board of Governors of the Federal Reserve System S B d fG f h F d lR S
6
The US Business Logistics System Cost is the Equivalent of 7 7 Percent of Current GDP in 2009 7.7
$ Billions Carrying Costs - $1.851 Trillion All Business Inventory Interest Taxes, Obsolescence, Depreciation, Insurance Warehousing Subtotal Transportation Costs Motor Carriers Truck Intercity Truck Local Subtotal Other Carriers Railroads Water Oil Pipelines Air Forwarders 368 174 542 50 29 10 29 28 146 9 42 TOTAL LOGISTICS COST 1,095 5 233 119 357
(International 25, Domestic 4) (International 14, Domestic 15) Subtotal
Shipper Related Costs Logistics Administration
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Number of Truck Drivers vs Freight Carried

Drivers Freight
115.0 110.0 105.0 105 0 100.0 95.0 90.0 90 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Bureau of Labor Statistics, Bureau of Transportation Statistics, and author estimates
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US Ports Lose Ground in 2009

Ports Los Angeles Long Beach New York Savannah Oakland Norfolk Houston Seattle Charleston, Charleston SC Tacoma 2009 5,028,998 3,765,560 3,587,740 1,914,751 1 914 751 1,398,420 1,375,632 1,256,049 1,072,838 954,836 873,708 2008 5,670,897 4,611,671 3,992,258 2,115,986 2 115 986 1,394,684 1,591,566 1,370,759 1,082,573 1,330,919 1,129,301 2007 5,740,261 4,994,949 3,935,262 2,041,521 2 041 521 1,451,326 1,573,273 1,415,657 1,289,364 1,408,434 1,150,590 2006 5,743,400 4,798,617 3,678,247 1,609,131 1 609 131 1,414,782 1,424,993 1,295,366 1,222,596 1,517,311 1,095,896
Source: Journal of Commerce PIERS Database, measured in TEUs

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Monthly Tonnage Indicator for Internal Waterways
55 2006 50 45 40 35 30
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2007 2008 2009
Source: US Army Corps of Engineers, Navigation Data Center

10
Index of Logistics Costs as a Percent of GDP 1989 - 2009

Inventory Transportation Total
110
US Recessions
90
Ind 1985 =100 dex 0
70
50
30 1990 1995 2000 2005 2009
Recession Dates: 3/1/2001 to 11/1/2001 and 12/1/07 to 7/1/09
11
GDP Growth and Logistics Cost Growth

GDP Logistics Costs
2005
2006
2007
2008
2009
12
Looking Ahead
Real GDP estimate for the first quarter of 2010 was revised downward recently to 3 percent, following a fourth quarter 2009 estimate of 5.6 percent Inflation rate remains low at 2.2 percent in April 2010 and the cost of living declined .1 percent in April as well Industrial Production has expanded every month in 2010
10 5 0 -5 -10 -15 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10
Industrial Production
13
Looking Ahead
Unemployment rose again to 9.9 percent in April 2010, but is expected to decline in May The pace of job creation is picking up in the second quarter of 2010 and initial jobless claims are tapering off The For-hire transportation industry has lost over 300,000 jobs since the start of the recession more than half of them in 2009 recession, 2009.
Jobs Lost 2009 Air (includes passenger) Rail Water Truck Pipeline pe e 20,100 17,200 400 109,000 1,800 ,800
Total Jobs Lost 50,300 20,800 9,800 216,500 2,000 ,000
14
Looking Ahead
2010 Truck Tonnage
Percent Cha ange
2010 Rail Carloadings

4.5
Percent Chan nge
2.00 1.50 1 50 1.00 0.50 0.00 Jan Feb Mar Apr
3.0 30 1.5 0.0 -1.5 Jan Feb Mar Apr
Source: ATA Truck Tonnage Index, SA
Source: AAR RailTime Indicators, SA
2010 Rail Intermodal

3.0 1.5 0.0 -1.5 -3.0 -4.5 Jan Feb Mar Apr
Percent Change C Million TEUs
2010 Container Traffic

1.10 1.05 1.00 0.95 Jan Feb Mar
Source: AAR RailTime Indicators, SA
Source: Global Port Tracker
15
Summary
2009 Logistics Costs fell to $1.1 trillion Logistics cost were equivalent to 7 7 percent of GDP in 2009 7.7 the lowest level recorded to date T Transportation costs d t ti t dropped 20.2 percent and now account d 20 2 t d t for 4.9 percent of nominal GDP all modes dropped substantially Inventory carrying costs declined 14.1 percent and now account for 2.5 percent of nominal GDP both decreased inventories and lower interest rates contributed
16
17
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State of Logistics Report

June 9, 2010 National Press Club, Washington, DC

Presented by Rosalyn Wilson P: 703-587-6213 E: Rosalyn@rwilson-inc.com

The Business Logistics System2009

21st Annual State of Logistics Report

The Great Freight Recession

Rosalyn Wil R l Wilson

US Business Logistics Costs

1.31 1.18 1.01 $ Trillions 0.97 0.92 0.95 1.03

(International 25, Domestic 4) (International 14, Domestic 15) Subtotal

Shipper Related Costs Logistics Administration

Logistics Cost As A Percent of GDP

10.3 9.5 8.8 8.6 8.8 9.5

Total US Business Inventories

Billions of Dollars US Recessions

Recession Dates: 3/1/2001 to 11/1/2001 and 12/1/07 to 7/1/09

Source: US Department of Commerce, Census Bureau S D fC C B

Source: US Department of Commerce, Census Bureau S D fC C B

US Average Commercial Paper Rates Continued to Fall in 2009

Source: Board of Governors of the Federal Reserve System S B d fG f h F d lR S

(International 25, Domestic 4) (International 14, Domestic 15) Subtotal

Shipper Related Costs Logistics Administration

Number of Truck Drivers vs Freight Carried

115.0 110.0 105.0 105 0 100.0 95.0 90.0 90 0

US Ports Lose Ground in 2009

Source: Journal of Commerce PIERS Database, measured in TEUs

Monthly Tonnage Indicator for Internal Waterways

2007 2008 2009

Source: US Army Corps of Engineers, Navigation Data Center

Index of Logistics Costs as a Percent of GDP 1989 - 2009

30 1990 1995 2000 2005 2009

Recession Dates: 3/1/2001 to 11/1/2001 and 12/1/07 to 7/1/09

GDP Growth and Logistics Cost Growth

Total Jobs Lost 50,300 20,800 9,800 216,500 2,000 ,000

2010 Rail Carloadings

2.00 1.50 1 50 1.00 0.50 0.00 Jan Feb Mar Apr

3.0 30 1.5 0.0 -1.5 Jan Feb Mar Apr

Source: ATA Truck Tonnage Index, SA

Source: AAR RailTime Indicators, SA

2010 Rail Intermodal

2010 Container Traffic

Source: AAR RailTime Indicators, SA

Source: Global Port Tracker

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