Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
If the numbers pouring forth from various sources are any indication, the great inventory rebuild of 2009-2010, which fueled the nation's economic recovery, could be coming to an end.
The latest indication of an inventory slowdown came today with the release of a monthly index that monitors truck drivers' diesel fuel purchases. That measure, the Ceridian-UCLA Pulse of Commerce Index (PCI), showed a sequential decline of 0.9 percent in May, following a 0.5-percent drop in April. The index, which tracks drivers' fuel card swipes as they transport raw materials as well as intermediate and finished goods to businesses and consumers, has declined in every month this year except March and has fallen in eight of the past 10 months.
Ed Leamer, an economist at UCLA's Anderson School of Management who directs the report in conjunction with payroll giant Ceridian Corp., said in a statement that the economic recovery started in July 2009 but lasted only until the following June. Since then, he said, the economy has "been idling, not powering forward."
One bright spot, Leamer said, is that the May results were about equal with May 2010, the strongest month of last year. "Nevertheless, the [May 2011 index] showed no growth, and this is another indication that the economy is stuck in neutral," he said.
Craig Manson, senior vice president at Ceridian, said the 2009-10 recovery was sparked by a rapid replenishment of inventories as companies rebuilt stocks that had been pared sharply during the recession. Restocking activity has now moderated to normal levels, but with the depressed construction and housing industries unable to offset the slowdown in inventory building, the economy has effectively stalled, Manson said. The index's authors have not made any forecasts for the rest of the year, but they don't expect a return to recessionary conditions, he added.
Little relief in sight
The impact of inventory contraction is also reflected in a sobering May 31 report from New York City transport investment firm Wolfe Trahan. In the report, the firm said its prediction several months ago of just 1 percent "freight GDP" growth—which would be about half of even the most downbeat projections for overall GDP growth this year—"no longer feels quite so unrealistic."
The firm, co-run by long-time transport analyst Ed Wolfe, wrote that shipping volumes in 2010 were stimulated by "faster inventory turns" as shippers scrambled to move goods to market and replenish depleted stocks. However, the oil price spike that began late last year has since compelled shippers to cut transportation costs and preserve inventory, the firm said. With an inventory slowdown turning into a potential "headwind" for volumes sometime this year, Wolfe Trahan expects traffic flows to decelerate on a year-over-year basis.
Shippers shouldn't expect much relief on the pricing front either, according to a first-quarter shipper survey conducted by the firm. Shippers polled said they expect a 9-percent increase in their 2011 shipping budgets over 2010, with fuel surcharges accounting for half of that increase. The same poll in the fourth quarter had shippers projecting a 6.5-percent year-over-year increase.
A monthly index published by freight audit and payment firm Cass Information Systems Inc. showed a 0.2-percent decline in May shipments over April figures, as orders and shipments of durable goods flattened out. Year-over-year shipment growth stood at 9.6 percent in May, down sharply from the 12.3-percent year-over-year gains reported in April, said Cass. The Bridgeton, Mo.-based firm bases the index on the expenditures and shipments of 400 clients.
Roslyn Wilson, author of the Cass report as well as the annual "State of Logistics" report to be released next week in Washington, D.C., said retailers concerned about the impact of high unemployment and rising food and fuel costs on consumer demand for finished goods have grown increasingly cautious about inventory restocking. That, in turn, has depressed supplier activity and has caused a downshift in new orders, Wilson said. She expects this sluggish pattern to persist for the rest of the year.
While shipping costs have risen, they are not high enough to be a deterrent to shipping, Wilson added. One grain of good news for shippers is that slowing activity has eased the demand for truckload capacity. "I have observed capacity tightening in the truckload market, but still not to where finding capacity is a problem," she said.
Holding out hope
To be sure, not everyone sees the current numbers as the start of something bad. Ben Cubitt, senior vice president of consulting and engineering at Frisco, Texas-based third-party logistics service provider Transplace, said his customers are providing mixed to favorable responses when asked about economic activity. Some say they're doing very well and staying busy, while others report steady conditions, with a dip in activity followed by a rebound to normalized levels, Cubitt said.
"Most seem to say things are about level—that they are not growing much, but not retreating either," Cubitt said.
In a mid-May survey of 500 shippers, Morgan Stanley & Co. said respondents still reported "robust volume growth," as well as tightening truck capacity and significant year-over-year rate increases. The firm said that orders continued to outpace inventory, suggesting that "inventory restocking could offer another source of upside throughout the year, but is not imminent."
The Institute for Supply Management's widely followed monthly manufacturing report showed a plunge in new orders in May and a five percentage point drop in manufacturer inventories. Inventory being held by customers remained "too low" for the 26th consecutive month, the May report said.
Bradley J. Holcomb, chair of the manufacturing report, said the decline in manufacturer inventories reflects how quickly producers are adjusting their inventories to meet fluctuating demand. "I am seeing that myself at my own company," said Holcomb, whose main job is serving as chief procurement officer at dairy giant Dean Foods.
Holcomb also said customer inventories remain especially lean as retailers shy away from adding to stocks for fear of getting stuck with surplus goods vulnerable to obsolescence. "Retailers have a wait-and-see attitude," he said in an interview. "They are holding back and keeping a tight rein on inventories."
For everyone in the supply chain, the biggest current problem is the persistent rise in raw materials and commodity costs, Holcomb said. One bright spot in May was that the "prices" component of the index declined by nine percentage points from April, indicating a possible moderation in input costs, he said.
RJW Logistics Group, a logistics solutions provider (LSP) for consumer packaged goods (CPG) brands, has received a “strategic investment” from Boston-based private equity firm Berkshire partners, and now plans to drive future innovations and expand its geographic reach, the Woodridge, Illinois-based company said Tuesday.
Terms of the deal were not disclosed, but the company said that CEO Kevin Williamson and other members of RJW management will continue to be “significant investors” in the company, while private equity firm Mason Wells, which invested in RJW in 2019, will maintain a minority investment position.
RJW is an asset-based transportation, logistics, and warehousing provider, operating more than 7.3 million square feet of consolidation warehouse space in the transportation hubs of Chicago and Dallas and employing 1,900 people. RJW says it partners with over 850 CPG brands and delivers to more than 180 retailers nationwide. According to the company, its retail logistics solutions save cost, improve visibility, and achieve industry-leading On-Time, In-Full (OTIF) performance. Those improvements drive increased in-stock rates and sales, benefiting both CPG brands and their retailer partners, the firm says.
"After several years of mitigating inflation, disruption, supply shocks, conflicts, and uncertainty, we are currently in a relative period of calm," John Paitek, vice president, GEP, said in a release. "But it is very much the calm before the coming storm. This report provides procurement and supply chain leaders with a prescriptive guide to weathering the gale force headwinds of protectionism, tariffs, trade wars, regulatory pressures, uncertainty, and the AI revolution that we will face in 2025."
A report from the company released today offers predictions and strategies for the upcoming year, organized into six major predictions in GEP’s “Outlook 2025: Procurement & Supply Chain” report.
Advanced AI agents will play a key role in demand forecasting, risk monitoring, and supply chain optimization, shifting procurement's mandate from tactical to strategic. Companies should invest in the technology now to to streamline processes and enhance decision-making.
Expanded value metrics will drive decisions, as success will be measured by resilience, sustainability, and compliance… not just cost efficiency. Companies should communicate value beyond cost savings to stakeholders, and develop new KPIs.
Increasing regulatory demands will necessitate heightened supply chain transparency and accountability. So companies should strengthen supplier audits, adopt ESG tracking tools, and integrate compliance into strategic procurement decisions.
Widening tariffs and trade restrictions will force companies to reassess total cost of ownership (TCO) metrics to include geopolitical and environmental risks, as nearshoring and friendshoring attempt to balance resilience with cost.
Rising energy costs and regulatory demands will accelerate the shift to sustainable operations, pushing companies to invest in renewable energy and redesign supply chains to align with ESG commitments.
New tariffs could drive prices higher, just as inflation has come under control and interest rates are returning to near-zero levels. That means companies must continue to secure cost savings as their primary responsibility.
Freight transportation sector analysts with US Bank say they expect change on the horizon in that market for 2025, due to possible tariffs imposed by a new White House administration, the return of East and Gulf coast port strikes, and expanding freight fraud.
“All three of these merit scrutiny, and that is our promise as we roll into the new year,” the company said in a statement today.
First, US Bank said a new administration will occupy the White House and will control the House and Senate for the first time since 2016. With an announced mandate on tariffs, taxes and trade from his electoral victory, President-Elect Trump’s anticipated actions are almost certain to impact the supply chain, the bank said.
Second, a strike by longshoreman at East Coast and Gulf ports was suspended in October, but the can was only kicked until mid-January. Shipper alarm bells are already ringing, and with peak season in full swing, the West coast ports are roaring, having absorbed containers bound for the East. However, that status may not be sustainable in the event of a prolonged strike in January, US Bank said.
And third, analyst are tracking the proliferation of freight fraud, and its reverberations across the supply chain. No longer the realm of petty criminals, freight fraudsters have become increasingly sophisticated, and the financial toll of their activities in the loss of goods, and data, is expected to be in the billions, the bank estimates.
Specifically, 48% of respondents identified rising tariffs and trade barriers as their top concern, followed by supply chain disruptions at 45% and geopolitical instability at 41%. Moreover, tariffs and trade barriers ranked as the priority issue regardless of company size, as respondents at companies with less than 250 employees, 251-500, 501-1,000, 1,001-50,000 and 50,000+ employees all cited it as the most significant issue they are currently facing.
“Evolving tariffs and trade policies are one of a number of complex issues requiring organizations to build more resilience into their supply chains through compliance, technology and strategic planning,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “With the potential for the incoming U.S. administration to impose new and additional tariffs on a wide variety of goods and countries of origin, U.S. importers may need to significantly re-engineer their sourcing strategies to mitigate potentially higher costs.”
A measure of business conditions for shippers improved in September due to lower fuel costs, looser trucking capacity, and lower freight rates, but the freight transportation forecasting firm FTR still expects readings to be weaker and closer to neutral through its two-year forecast period.
Bloomington, Indiana-based FTR is maintaining its stance that trucking conditions will improve, even though its Shippers Conditions Index (SCI) improved in September to 4.6 from a 2.9 reading in August, reaching its strongest level of the year.
“The fact that September’s index is the strongest since last December is not a sign that shippers’ market conditions are steadily improving,” Avery Vise, FTR’s vice president of trucking, said in a release.
“September and May were modest outliers this year in a market that is at least becoming more balanced. We expect that trend to continue and for SCI readings to be mostly negative to neutral in 2025 and 2026. However, markets in transition tend to be volatile, so further outliers are likely and possibly in both directions. The supply chain implications of tariffs are a wild card for 2025 especially,” he said.
The SCI tracks the changes representing four major conditions in the U.S. full-load freight market: freight demand, freight rates, fleet capacity, and fuel price. Combined into a single index, a positive score represents good, optimistic conditions, while a negative score represents bad, pessimistic conditions.