January 3, 2013

Keeping costs under control key focus for 2013

Keeping costs under control key focus for 2013

DC Velocity reader poll finds shipment consolidation and carrier rate renegotiation top priorities for coming year.

By James A. Cooke

As shippers wrestle with tight budgets in the coming year, they'll most likely turn to shipment consolidation and rate renegotiation to rein in costs, according to DC Velocity's annual Outlook survey.

Exhibit 1

Forty-two percent of DC Velocity readers who took part in the latest survey said they planned to consolidate more of their shipments into full truckloads, while 36 percent said they intended to renegotiate rates this year. Also ranking high on the list of planned cost-cutting moves were scaling back on express shipments (32 percent), automating more work processes (31 percent), and taking control of more inbound freight (26 percent). (See Exhibit 1 for a list of the top 10 cost-cutting strategies.)

The annual survey asks readers about their outlook for the U.S. economy as well as their plans for buying logistics services and material handling products in the year ahead. This year, 333 DC Velocity readers responded to the online poll, which was conducted in November following the presidential election.

Respondents were fairly evenly spread across industry sectors. The majority, about 31 percent, came from manufacturing. Another 26 percent were distributors, 12 percent were retailers, and 23 percent were service providers, such as third-party logistics companies. Eight percent fell into the "other" category.

DC Velocity readers were divided in their opinions on how the overall U.S. economy will fare in 2013. About 37 percent said they were optimistic, 34 percent were pessimistic, and 29 percent were unsure.

As for the U.S. economy's growth prospects, 79 percent of respondents said they believed growth would be either weak or flat in 2013. Only 16 percent said they expected strong growth, while 5 percent had no opinion. Those jitters about the overall economy may be linked to the fact that 81 percent of respondents are concerned that oil prices will rise in 2013.

As has been the case in past surveys, respondents held a rosier view of their own companies' prospects than they did about business conditions at large. Thirty-five percent predicted their companies' sales would rise in 2013, while 33 percent expected revenues to remain flat. Another 23 percent said company sales would be weak, and 10 percent said they didn't know what trajectory sales would take.

Despite their relatively bearish view of the economy at large, respondents nonetheless expect to maintain—or even increase—their spending on logistics-related services and products in 2013. Forty-one percent said their spending on logistics services and material handling equipment would be on par with 2012 levels, while 40 percent expect to spend more. Of those companies that expect to up their spending on logistics services and material handling equipment, 52 percent anticipate a 3- to 5-percent increase.

As for where those dollars will go, about 40 percent said they planned to spend more on transportation services across all modes. Thirty-nine percent said their freight spend would stay the same, while 9 percent predicted a reduction. Among those respondents who expect to boost their spending on transportation, 52 percent said their expenditures would rise between 3 and 5 percent.

Exhibit 2

As has been true for the past three years, trucking services topped the survey takers' list of planned transportation purchases, with 67 percent of respondents saying they would purchase less-than-truckload (LTL) service and 55 percent citing plans to buy truckload transportation in 2013. Fifty-one percent of respondents planned to buy small-package service. (See Exhibit 2.)

Similarly, there were few surprises when it came to planned material handling equipment purchases. As was the case last year, racks and shelving topped the "to-buy" list, cited by 48 percent of survey takers. Racks and shelving were followed by lift trucks (44 percent), safety products (43 percent), batteries and battery handling equipment (35 percent), and dock equipment (31 percent).

A little over half the respondents indicated that they had budgeted funds for DC improvements in 2013, whether it involved expanding or retrofitting an existing facility or building a new one. Of those 174 respondents, 56 percent said they planned to buy maintenance products, while 42 percent expected to invest in lighting and 28 percent planned to buy fans.

Fifty-eight percent of survey respondents plan to purchase logistics technology in the coming year. Of those respondents, 27 percent said they expect to buy a warehouse management system (WMS), while 22 percent plan to purchase an inventory optimization package. Twenty percent of those respondents said they planned to buy a transportation management system (TMS), and another 18 percent will invest in an application for business intelligence or analytics.

The survey also indicated that respondents will continue to rely heavily on third-party logistics service providers (3PLs). Of the respondents that were currently using 3PLs, 51 percent said their use of third parties would remain the same. Another 41 percent anticipated an increase, while just 8 percent expected to cut back on outsourcing.

About the Author

James A. Cooke
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP’s Supply Chain Quarterly and a staff writer for DC Velocity.

More articles by James A. Cooke

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