December 21, 2009
special report | 2010 Economic Outlook

Survey: DCs shift to "recovery mode"

Survey: DCs shift to "recovery mode"

Respondents to DC Velocity's 2010 Outlook Survey are guardedly optimistic about the economy. But they're not easing up on their cost-cutting efforts just yet.

By James A. Cooke

Many economists are telling us the recession is over, and Wall Street seems to concur. But what about those in the trenches? What do the nation's distribution professionals see for the U.S. economy in 2010?

Although the results of DC Velocity's 2010 Outlook survey were somewhat mixed, the poll revealed a generally upbeat mood. A narrow majority of the respondents —56 percent —said they were optimistic the economy would pick up steam. Another 24 percent said they remained pessimistic, and 20 percent indicated they were unsure which direction the economy would take.

The online poll was conducted in the second half of October, as the Dow Jones industrial average flirted with the 10,000 mark. A total of 267 readers filled out the questionnaire. The majority of the respondents worked for manufacturers (31 percent) or distributors (30 percent). The remainder worked for logistics service providers (19 percent), retailers (10 percent), or other types of businesses (10 percent).

Despite the generally upbeat attitude, few of the survey respondents expect the economy to come roaring back. Only 15 percent said that overall U.S. economic growth would be strong in 2010. Another 47 percent predicted weak growth, while 36 percent said business would be flat. Two percent declined to speculate.

When the respondents were asked about their own company's revenue projections for 2010, the outlook was a bit better. A full 25 percent foresaw strong sales growth, and 29 percent said they expected at least weak growth. Another 39 percent predicted that sales would be flat, while 7 percent said they were unsure about their company's revenue projections.

Exhibit 1: Keep on trucking
Despite all the talk of a rail renaissance, trucks will continue to dominate the market in 2010. When asked what types of transportation services they planned to buy, DCV's readers put LTL motor freight at the top of the list.
Type of service % of respondents*
Less-than-truckload motor freight 69
Small package 65
Truckload motor freight 57
Air freight 41
Express/Expedited/Time-critical 36
Transportation-based third-party logistics services 34
Maritime/Ocean 30
Private fleet tractors and/or trailers 28
Rail/Intermodal 28
Barge 4
*Note: Survey respondents were allowed to select multiple responses
Exhibit 2: The cost-cutting continues
An economic recovery may be in the offing, but DCV's readers aren't backing off from their cost-cutting efforts just yet. When asked about their plans for trimming expenses, respondents mentioned shipment consolidation most often.
Cost-cutting action % of respondents*
Consolidate more shipments into truckloads 42
Renegotiate rates with carriers 40
Cut back on express shipments 31
Redesign supply chain network 21
Reduce shipping frequency to customers 20
Use fewer carriers 19
Use more rail in place of truck 15
Lay off workers 11
Outsource more distribution tasks 10
Use more air in place of ocean 9
Use fewer DCs 7
Set up more DCs 6
*Note: Survey respondents were allowed to select multiple responses

Pickup in spending
Given concerns about tepid sales, it's probably no surprise that companies are being conservative in their budgeting. When asked about their spending plans for 2010, only 30 percent of the survey respondents said they expected to spend more on logistics products and services than they did in 2009. Most of the respondents —44 percent —projected that their expenditures would stay the same, while 16 percent anticipated a drop. Ten percent said they weren't sure how their 2010 spending would stack up against 2009's.

Judging from the survey responses, any increases in logistics-related spending are likely to be modest. Of those respondents who plan to up their spending in 2010, the majority —56 percent —said they expected their expenditures to increase by 3 to 5 percent over 2009 levels. About 16 percent said their spending would grow by just 1 or 2 percent, while 12 percent said they planned to increase their outlays by 5 to 9 percent. A few of the respondents were more bullish, however. Sixteen percent projected that their spending would jump by more than 10 percent.

When asked specifically about their plans for buying transportation services, 35 percent of all respondents said their 2010 expenditures would increase over 2009 levels. About 39 percent said their spending would remain the same, and 13 percent expected a decrease. Another 13 percent said they weren't sure.

As for what kinds of transportation services they plan to buy in 2010, the biggest share of the respondents —69 percent —said they expected to purchase less-than-truckload (LTL) freight service. That was followed by small-package service (65 percent) and truckload service (57 percent). (See Exhibit 1.)

When asked what types of material handling equipment they plan to invest in, 40 percent cited safety products for their distribution operations. That was followed closely by racks and shelving (39 percent) and lift trucks (37 percent).

As for software, it appears sales of warehouse management systems (WMS) will be reasonably strong in 2010. Thirty-eight percent of the respondents said they planned to purchase a WMS sometime in the next 12 months. Next on the list were transportation management systems (TMS), which were mentioned by 25 percent of the respondents. Other common responses included planning and forecasting software, and inventory planning software, which were each named by 23 percent of the survey takers.

A watchful eye on costs
Although signs of economic recovery are in the air, it appears that distribution professionals aren't backing off from their cost-cutting efforts just yet. The vast majority of respondents indicated they would continue working to trim distribution expenses in 2010. When asked what measures they planned to take, 42 percent of the survey respondents mentioned consolidating more shipments into truckloads. Forty percent said they intended to renegotiate rates with their carriers. Other common responses included cutting back on express shipments (31 percent) and redesigning the supply chain network (21 percent). (See Exhibit 2.)

While they're guardedly optimistic about the economic outlook for 2010, a significant number of respondents see at least one troubling sign on the horizon. A full 85 percent expressed concern that oil prices would head back up, which would almost certainly lead to higher freight rates.

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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