24th State of Logistics Report (June 2013)

8/13/2019 24th State of Logistics Report (June 2013)

1/50

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 boardwithout prior written permission from CSCMP.


2/50

24th Annual

State of Logistics Report

Is This The New Normal?

June 19, 2013

National Press Club, Washington, DC

Presented by Rosalyn WilsonP: 703-587-6213 E: [email protected]


mailto:[email protected]:[email protected]:[email protected]


3/50

Introduction

The cost of the U.S. business logistics system rose 3.4 percent in 2012 still short of the peak

2007 level (Slide 1). Business logistics costs increased to $1.33 trillion, up $43 billion from

2011. In 2012, logistics costs as a percent of the nominal Gross Domestic Product (GDP)

remained at the 2011 level of 8.5 percent. This means that the freight logistics sector was

growing at about the same rate as GDP.

Both inventory carrying costs and transportation costs rose quite modestly in 2012. Inventory

carrying costs increased 4.0 percent (Slide 2). Total business inventories rose again in 2012

pushing up related costs, such as taxes, depreciation, obsolescence, insurance and

warehousing. Interest rates went still lower in 2012, pushing the interest component down 6.9

percent despite higher inventory levels. Transportation costs were up only 3.0 percent in 2012

because of weak and inconsistent shipment volumes and strong pressure to hold rates.

2012 continued many of the same trends we have been experiencing since 2010 following the

end of the recession. At the end of this month the economy will celebrate its fourth full year of

recovery. You are probably thinking that there has not been much to celebrate. Once again

2012 can be characterized by a lack of sustained growth in the economy and by extension the

freight sector. Now that we are four years out and the economy is still experiencing the low to

slow growth; unemployment levels remain high; job creation is weak and focused on lower

quality jobs; freight volumes and rates have been inconsistent and the trends rarely move in

the same direction for more than a couple of months; and the global economy has ratcheted

down considerablyis it time to ask is this the new normal?

Other than the Great Depression, no other financial or economic event has created the level of

upheaval and economic restructuring as the Great Recession has between 2007 and 2009.During that period, households lost close to 50 percent of their net worth; millions lost jobs and

we learned to get the same work done with fewer people; parts of the economy were made

lean or right-sized such as truck and cargo jet fleets and retail inventory levels; and supply

chain practices were adapted to be even more mode agnostic to make best use of the

available capacity, reduce costs, and wring out still more productivity. Entire industries were




4/50

3

expected to remake themselves following a less labor intensive model with increased use of

technology to improve quality and cut costs. The U.S. automotive industry is a good example

of this. Foreign manufacturers built plants in the U.S. proving that vehicles could be

manufactured here at a competitive price. Detroit automakers had to adjust or perish. The

single biggest accomplishment resulting from the Great Recession is the increased productivityacross almost all sectors of the economy. Everywhere we have learned to do more with less.

Unfortunately the increased productivity has, in many cases, reduced the need to rehire laid off

workers. Many businesses invested in better software or process redesign rather than invest in

human capital. It is much less traumatic to shut off a machine than to fire a person.

I believe that we are experiencing a new order that is translating into the new way of life for the

economy and the logistics and supply chain sectors for the foreseeable future. The new normal

is characterized by slow growth with GDP growth hovering between 2.5 to 4 percent; higher

unemployment levels and slower job creation; higher healthcare costs for businesses that will

encourage extremely lean full-time staffs and a higher reliance on part-time workers who do

not receive benefits; less reliable or predictable freight service as volumes rise, but capacity

does not increase fast enough to fully meet demand; and longer shipping times for

commodities moving by ocean. Household net worth and disposable income is expanding very

slowly when compared to growth rates for the decades leading up to the recession, making

consumers more risk averse. Consumer credit is expanding at a slower rate and is showingsigns of leveling off well below pre-recession totals. Household savings rates are rising and

consumers are more careful about how they spend their money. Another example of a

changed trend is the phasing out of the traditional peak holiday seasonrecent peak shipping

seasons have either been almost undetectable or protracted so that their impact is minimal on

capacity and rates. We have changed the way we manage and distribute our inventory as

online shopping has exploded. Along the way, we learned that real-time transparency in our

distribution networks allows us to fulfill orders faster with less inventory. The same inventory is

used to fill store orders and online orders. If the store doesnt have the item in the color or size

you want, your order can be placed right at the store.

As I outlined in this years report, I found that there was no truly new story to tell. The same

observations about bumping up and down along the bottom but never quite getting off the




5/50

4

ground could be made about 2012. When I study my two previous reports and look at my

expectations for the rest of this year through 2015, my conclusion is that the trends are not

going to be materially different than they have been for the last three years. Given the world

economic picture and the economic dependency we have on our global trading partners, there

are no indicators that we can expect any dramatic shifts. I do believe that the economy and thelogistics sector will slowly regain sustainable momentum, but that we will still experience

unevenness in growth rates.

2012 started out strong, building on the momentum from the fourth quarter of 2011, but

ultimately lost steam in the third quarter. Capacity is a big factor impacting the industry in

different ways, positively and negatively (Slide 3). Truck capacity is still walking a fine line, with

few shortages but industry-high utilization rates. Qualified truck drivers have become a

valuable commodity in very short supply, which is becoming more of an issue as the shortage

grows from 30,000 drivers today to 115,000 by 2016. Ocean carriers continue to manage their

excess capacity while battling unfavorable load factors and downward rate pressure. Despite

reductions in the number of cargo aircraft, the air cargo industry is still battling overcapacity,

made worse by the increased availability of cargo space in the bellies of passenger jets. The

railroads still have more than 20 percent of their freight cars in storage.

The unemployment rate began to edge downward in 2012, but the employment rate, which isthe percentage of adult Americans who hold a job, has not budged in three years. Further it

has been at almost the lowest rate in 30 years. According to the U.S. Labor Department the

employment population ratio is around 57 percent, a level last seen in 1983. The adult

population in the U.S. increases by about 200,000 people per month and we have been

averaging about 173,000 new jobs per month. Therefore our job creation rate is not even

covering our population increase. In December, Federal Reserve Chairman Ben Bernanke

called the employment population ratio a worrying sign of discouragement about the state of

the labor force. The U.S. economy lost an estimated 8.7 million jobs during the recession and

has recovered about6.3 million jobs. New jobs created are increasing, but the category with

the most growth is part-time employment. These jobs often do not come with benefits nor the

expectation that they will be long term.




6/50


7/50


8/50

7

that is caused in wholesale inventories when retailers do not place orders for goods already in

inventory to meet expected demand. Consumers and retailers still have expectations that

items will be in stock or on their way overnight, meaning manufacturers and wholesalers need

to have the items far along in the supply chain. Forecasting consumer behavior has not been

as straight forward as in previous periods in our economic history.

The cost of carrying inventory is determined not only by the value of private inventories, but

also the interest rate for holding those inventories. The annualized commercial paper rate from

the Federal Reserve is used for the interest component in the SOL model. This rate fell again

to 0.11 percent in 2012, from 0.13 percent in 2011 (Slide 11). Higher inventories together with

historically low interest rates caused a 6.9 percent decline in the interest component of

carrying costs. Under normal interest rate conditions, the growth in inventory would have

moved the change in the other direction. For instance, if the 2007 interest rate of 5.07 percent

were substituted, total logistics cost would increase by $112 billion. This, in turn, would change

logistics cost as a percent of GDP from 8.5 to 9.2 percent. The same impact magnitude would

be felt in the general economy if the Federal Reserve abruptly ended programs to stimulate

growth.

Taxes, obsolescence, depreciation, and insurance were up 2.6 percent in 2012. The increase

in these components is directly related to the growth in inventories. Insurance rates remainedlevel, as did taxes, leaving depreciation and obsolescence to make up the bulk of the rise in

this component.

The cost of warehousing was up 7.6 percent in 2012. Growing inventory levels filled all

available capacity. Lease rates were higher indicating more of a recovery for this sector. New

construction increased the available inventory, but occupancy rates are climbing (Slide 12).

Transportation costs went up 3.0 percent in 2012.Carrier revenues are used to measure the

cost to shippers in the SOL model. All modes posted modest revenue increases in 2012.

Neither rate nor volume growth was particularly strong during the year, but the first half was

much better than the second half of the year.

Trucking, the largest component of transportation costs, posted a 2.9 percent rise (Slide 13).




9/50

8

The intercity truck segment rose 3.2 percent and the local delivery segment was up 2.1

percent. Truck tonnage increased 2.3 percent in 2012. Uneven performance is still the pattern

for the year. The trucking sector has been in a delicate balance for several years now, just on

the breach of experiencing capacity problems. Utilization rates are at all time highs with load

volumes on the rise. New regulation is expected to take a bite out of industry productivity,especially the new Federal Motor Carrier Safety Administration (FMCSA) Hours of Service

(HOS) Rules (Slide 14). The new restart rule represents a theoretical 17 percent reduction in a

standard work week. Estimates abound on the actual impact of the new HOS , but fall

somewhere between a 2 to 10 percent productivity decrease. Medical certifications and hair

follicle drug testing under Compliance, Safety, and Accountability (CSA) have already had the

impact of reducing capacity in the industry by shrinking the pool of eligible drivers. There is still

much confusion as to how to use the information available through CSA about a carriers

performance and reliability and a drivers suitability.

Truck sales soared early in 2012, but new orders came to an abrupt end as traffic slowed.

Used equipment is scarce and prices have been bid up to the point that a new truck with better

gas mileage and other features may be a better investment. Purchases still appear to be

replacing equipment being retired rather than adding to the fleet. For instance, Con-way

recently announced that it was acquiring 525 new tractors to be delivered in 2013. They are

being purchased to replace existing vehicles that are being replaced as they reach 500,000miles. The exception is new equipment to meet the increasing number of dedicated carriage

contracts. Despite the shrinking fleet, carriers are still reporting difficulty finding enough drivers

(Slide 15).

Right now it is estimated that the industry is short about 30,000 drivers. The HOS regulation

that goes into effect July 1, 2013 could have the effect of a net 2 to 5 percent reduction in

driver capacity, so projecting that out arrives at the need for another 100,000 drivers. That is

without an increase in volume. The U.S. Labor Department forecasts that truck drivers will

account for 43 percent of the growth in logistics jobs in the coming years. Where will these

drivers come from? Truck drivers represent a job category with the fewest potential workers

trained to fill them. Only about 17 percent of the current driver population is under 35, while a

larger portion of the driver population is reaching retirement age. There are a number of factors




10/50

9

affecting driver supply. The first of which are stricter qualifications and the high cost of training.

Trucking companies used to sponsor more drivers in driver training programs, but tougher

economic times did away with many of the programs. There are also expanded unemployment

benefits, coupled with what some call the underground economy. Many potential candidates

have been receiving generous and long-lived unemployment benefits that they havesupplemented with cash only jobs usually related to a personal service like lawn mowing,

handy man or childcare. The abundance of part-time jobs also enables people to get by.

Private fleet owners also have an aging population and they have been attracting some of the

most desirable drivers with better pay and working conditions. More drayage work is available

because of the growth of intermodal, pulling drivers out of mainstream driver jobs because of

the better hours. Sign on bonuses and productivity or performance bonuses are becoming

quite prevalent and grow higher with each passing day. The performance bonuses have the

double benefit of keeping drivers happy and improving the bottom line. The industry is not very

successful in recruiting younger drivers because trucking companies have not done a good job

of dispelling negative views of the job and do little to demonstrate a career path to drivers.

The cost for rail transportation was up 4.9 percent in 2012, down from an increase of more

than 16 percent in 2011 (Slide 16). Class I freight revenue per ton-mile increased 5.3 percent,

from 3.760 cents to 3.961 cents. Ton-miles actually decreased 1 percent in 2012, but remained

above 1.7 trillion. Total carloads for the year fell 3.1 percent compared to 2011. Intermodalvolume was the second highest on record, strong competition from trucks held rates down in

2012. The average length of haul increased to 947.9 miles in 2012 from 917.2 in 2011. Lower

tonnage in 2012 led to declines in both average tons per carload and average tons per train.

Class I railroads moved 1.8 billion tons in 2012. Coal rebounded somewhat and accounted for

40.2 percent of the tonnage hauled and 21.6 percent of gross revenues. Chemicals and allied

products represented 10.5 percent of tons and 13.5 percent of revenue. By contrast, the

fastest growing commodity group includes crude oil from shale oil fields, which grew by 53

percent. The commodity grouping petroleum and coke products, accounts for just 2.5 percent

of the total tonnage and 3.4 percent of the gross revenue.

With respect to capacity, railroads are in very good shape from an infrastructure, equipment,




11/50

10

and personnel basis. Capital spending for road and equipment increased 16.1 percent in 2012,

topping $13 billion dollars. Fuel prices moderated in 2012 and fuel as a percentage of

operating expenses dropped from 23.1 percent in 2011 to 22.8 percent in 2012. This was not

due entirely to lower prices as Class I railroads consumed 2.1 percent fewer gallons to haul

more tonnage in 2012.

Costs for the water sector declined 0.9 percent in 2012 (Slide 17). It was another disappointing

year for ocean carriers. Vessel capacity jumped up 7.2 percent as demand fell off sharply

globally. Deliveries will not fall off until 2014 because carriers did not stop ordering until mid-

2011. Capacity is expected to rise by 10 percent in 2013 because of new deliveries. The new

vessels will be difficult to deploy without further damaging the industrys dynamic. The March

round of general rate increases held and helped improve the bottom lines of many carriers.

However carriers were not able to maintain the rates in the face of dwindling volumes and

engaged in a brutal rate war. During 2012, carriers tried seven more times to implement

general rate increases, but none stuck. According to Drewery Maritime, yearend average head

haul rates dropped from $2,700 in March to $2,400 at year end. Spot rates were still heading

down. From its peak in July 2012 Drewerys composite world container index fell more than 33

percent by December.

At one point in 2012, after the volume decline and rate war in March, about 5.8 percent of thefleet was idled to try to shore up rates. When rates firmed up midyear, ships were redeployed,

dropping the idle rate to 2.7 percent. By October the idled fleet had grown to 3.7 percent of the

fleet. Slow-steaming was the norm in 2012 and had the impact of adding a minimum of a week

to deliveries from China.

While still experiencing mainly positive growth, our nations ports did not enjoy the robust

expansion in cargo volumes they experienced in 2011, Norfolk and Tacoma being notable

exceptions (Slide 18). On the West Coast, Tacoma posted the highest gain at 15.9 percent.

Los Angeles increased container volumes by 1.7 percent and Oakland rose by a slight 0.1

percent. For the second year in a row, Seattle posted the biggest loss with a drop of 8.0

percent while TEUs through the Port of Long Beach fell 0.3 percent. On the East Coast, the

Port of Norfolk was the big winner with an increase of 9.8 percent in TEUs handled, followed




12/50

11

by Charleston with a 3.4 percent growth. The Ports of New York-New Jersey rose only 0.5

percent and Savannah increased 1.9 percent.

Tonnage on the inland waterways was significantly higher in the first half of 2012 (Slide 19).

Despite the strong start, 2012 tonnage fell off in the second half of the year. The droughtlowered water levels on the inland waterways reducing the width of navigable channels. The

Army Corps of Engineers provided emergency dredging to improve navigability on heavily

traveled sections of the rivers. There were numerous times when sections could be traveled

only in one direction at a time because the width of the channel would not support a barge tow

in each direction. Barges were often backed up for days at a time awaiting passage. Close to

100 vessels ran aground in the lower Mississippi, each causing hours to days of delays.

Shallower channels mean lighter loads, slower speeds, and fewer barges in a towany of

which run up costs. Several harbors were closed at the height of the drought because of

reduced draft. Each inch of draft lost represents thousands of tons of products that cant be

moved. An 11 mile stretch of the Mississippi River was closed intermittently in August, causing

queues of up to 100 tows. Every day a single towboat is idle costs the owners $10,000no

surprise that grain shipping rates increased close to 25 percent during that period.

Oil pipeline ton-miles were virtually flat in 2012. This was more than offset by an upward rate

adjustment, pushing pipeline revenue up 8.3 percent. The pipeline industry is still regulated.

Air freight revenue increased 3.1 percent in 2012 (Slide 20). Total tonnage dropped 2.2

percent, with international declining 1.4 percent and domestic down 0.1 percent. Domestic air

cargo ton-miles rose 2 percent, but international ton-miles fell 3.9 percent. The air cargo

industry has been facing chronic overcapacity and deteriorating yields. Passenger jets are

carrying growing volumes of cargo in their bellies, taking market share from cargo freighters.

Belly cargo is very profitable, estimated at close to 65 percent, so passenger airlines havebeen pursuing it more aggressively.

The Bureau of Labor Statistics tracks transportation costs for international freight moving in

and out of the country (Slide 21). Throughout 2009, record inventory levels were drawn down,

in many cases even below safety stock level. So when consumer sales began to recover In




13/50

12

2010 shippers were willing to pay the extra cost to use air shipping rather than risk ordering

before demand manifested to use lower cost ocean shipping. In addition, many supply chain

links were broken by distant suppliers who closed up shop when demand dried up, so it was

often necessary to forge new links in the supply chain and use air freight to reduce shipping

time. By the middle of 2011, retail sales were weaker and cost was becoming a more urgentissue so shippers returned to ocean carriage. The surge of exports since 2009 fueled an

increase in outbound rates, but rates moderated by mid 2010.

Freight forwarder revenue rose 5.4 percent (Slide 22). The forwarders category represents

non-asset based freight services providers and the 3PL segment is the largest. Revenues for

the 3PL sector rose 5.9 percent in 2012 according to Armstrong and Associates. The 3PL

sector can be sliced into four segments, each representing a subset of the industry (Slide 23).

The domestic transportation management segment was the fastest growing with gross

revenues up 9.2 percent. The cost of purchasing transportation has risen modestly and

competition in the marketplace has held rates down.

Shipper related costs rose 1.8 percent and logistics administration increased 3.4 percent.

This is how the performance of our business logistics system has looked for the last decade,

between 2003 and 2012 (Slide 24). Note that there really has been very little change in thelast three years. It is also apparent that we are well below pre-recession levels.

GDP was up in 2012, but logistics came in just a little lower (Slide 25).Logistics cost and GDP

have been running neck and neck since we exited the recession. This could be a graphic

representation of the notion that the performance of the logistics sector is one of the strongest

indicators of the direction the economy is moving. If the industry is not moving products, then

the economy is not cranking,

Recent Developments

2013 is following a pattern similar to last two years: mixed economic signals and unbalanced

performance. On the positive side, consumer confidence has been very high. Housing is




14/50

13

showing signs of stronger recovery with sales of new and existing homes picking up last

month, and more importantly, building permits (an indicator of future construction) rising to the

highest level in four years. Automobile and small truck sales have been strong for three years

running, fueling strong import and export movements. The Institute for Supply Managements

Purchasing Managers Index (PMI) for manufacturing activity accelerated at its fastest pace intwo years. On the negative side, we have the impact of the Sequester and resulting

government spending cuts and personnel furloughs; the hike in payroll taxes; weak retail sales;

high fuel prices; continued global economic decline; weak job growth and high unemployment;

and rising operating costs for logistics providers.

What a difference a couple of months make. Industrial output had been flat for several months,

but inched up in May; consumer confidence had been climbing to post recession highs, but

dropped for the last three months; and unemployment inched back up in May. The large

number of housing construction permits issued at the beginning of the year have not actually

translated to new housing starts, indicating a less robust recovery than anticipated. Are these

all indicators that we are stillon the bumpy road to recovery? Or, are these trends simply the

new normal? These are the same trends we have contended with for the last three years and

they will be with us for at least the next three, so perhaps it is time to consider that we have

recovered, but things are different now.

The manufacturing sector in the U.S. has been cooling off (Slide 26), and in May,

manufacturing actually contracted according to the Institute for Supply Managements PMI.

Also, changed to contracting were new orders, down 3.5 percent; production, down 4.9

percent; and backlog of orders, down 5 percent. Customer inventories rose 2.5 percent while

supplier deliveries dropped 2.2 percent. If consumers are not clearing inventory from shelves,

businesses are not placing orders, and manufacturers are not producing. Then the

transportation sector has nothing to move.

All previous recoveries from recessions have been led by the consumer sector. This recovery

has been very different, but consider that only the Great Depression had a greater long-lived

impact on the consumer. The aftermath of the financial crisis that precipitated the recession,

was a consumer who lost serious ground financially, had very low confidence in the economy,




15/50

14

and had a high chance of finding themselves or a family member unemployed. These

consumers, the backbone of the U.S., have not been spending as needed to fuel a traditional

recovery scenario. Manufacturing appeared as the brightest star of the recovery, sustaining

what little economic growth we have experienced. However, the reason that manufacturing

looked so good for the last couple of years was its starting position had been reset. The valueof goods manufactured during the recession plummeted 20 percent, eradicating more than 2

million jobs. In 2010, manufacturing grew at a rate of 7.4 percent and many of the jobs being

created in the sector were actually just replacing those lost earlier. In 2010, consumers

increased their spending, manufacturing rose, employment rose, and we talked of a strong

recovery on its way. But in 2011 the manufacturing expansion slowed to around 5 percent, and

in 2012 manufacturing dropped to under 3 percent. With the latest decline in manufacturing

this year, it is unlikely that manufacturing will reach pre-recession levels soon.

Manufacturing jobs have turned from being the majority of new jobs created to one of the

largest groups adding to the rolls of the unemployed. Industrial production grew by 3.8 percent

in 2012, but estimates for 2013 fall to 2.3 percent. The manufacturing sector is closely tied to

the freight transportation sector and when manufacturing falls, so does the freight sector. The

logistics sector is no longer needed to bring materials and supplies on one end, or to deliver

finished product on the other end.

2013 has yielded mixed freight results (Slide 27). Year-to-date rail carloads through the end of

May were down 1.7 percent when compared to the same period in 2012. Year to date

intermodal units were up 4.1 percent when same periods are compared. May 2013 saw the

first year-over-year monthly total carload increase in 16 months, and the 42nd straight monthly

increase in intermodal traffic. The ATAs monthly truck tonnage indicator, available through

April, has increased in two of the months reported thus far. The Cass Freight Index provides

another way to visualize the ups and downs being experienced in the transportation sector

(Slide 28). Notice how closely intertwined these curves are, another indication that we have

not gained much ground and this may be the new normal.

The global economy has experienced, or may be the root cause of, the most recent backslide

in the U.S. economy. Chinas economy has been contracting for many months as new orders




16/50

15

and backlog dried up because new orders for export goods have evaporated. Chinas

Purchasing Managers Index posted a modest rebound in May. A closer examination showed

that the positive headline was misleading for application to the U.S. economy. The growth

sectors were focused inward, withthe majority of the increases found in domestic production,

not export manufacturing. Lowered expectations the growth of manufacturing globally havebeen issued several times already this year. Recently the United Nations Industrial

Development Agency released a revised estimate for Annual Manufacturing Growth. It shows

world manufacturing growing at 2.9 percent in 2012 and barely rising to 3.0 percent for 2013.

North America, which is heavily influenced by the U.S., experienced only 0.4 percent growth in

2012, but is expected to rise to 1.7 percent this year. Many of our major suppliers of

manufactured goods are in developing countries and manufacturing growth in those countries

is expected to fall in 2013. The U.S. and Europe are not placing enough orders to sustain the

growth rates these countries have seen during the last few years.

Summary

2012 was certainly not a great year from an economic perspective. However, the freight

sectors saw modest improvements. Current economic conditions globally do not support a

robust outlook: new orders and backlogs are down, manufacturing is falling, and GDP outlooks

are being downgraded. Record high inventories could become a drag on the economy if we do

not start drawing them down. Slow growth will be with us for many yearsis this the new

norm?




17/50

24thAnnual State of Logistics Re

Is This The New Normal?

National Press Club

Washington, DC

,

Rosalyn Wilson

- .

703-587-6213

This document is available from our site and provided for your personal use only and may not be retransmitted or redistributed without written permission

Council of Supply Chain Management Professionals (CSCMP). You may not upload any of this site's material to any public server, online service, networ

without prior written permission from CSCMP.


18/50

U.S. Business Logistics Costs

1.391.34

0.951.03

1.17

.

1.101.20

.

Trillions

$

2003 2004 2005 2006 2007 2008 2009 2010 2011

1This document is available from our site and provided for your personal use only and may not be retransmitted or redistributed without written permission




19/50

The U.S. Business Logistics System Co .

$ Bill io

Carrying Costs - $2.269 Trillion All Business Inventory

InterestTaxes, Obsolescence, Depreciation, InsuranceWarehousing

3302130

Subtotal 434

Motor Carriers

Truck IntercityTruck Local

445202

Subtotal 647

Other CarriersRailroads

Water (International 27, Domestic 7)

Oil Pipelines

Air International 13 Domestic 20

72

35

13

33

Forwarders 37

Subtotal 189Shipper Related Costs 10

2

TOTAL LOGISTICS COST 1,33

May not sum to total due to rou





20/50

Capacity, Capacity, Capacity

cean

&Air

TooJustRi ht

Railroads





21/50


22/50

Exports and Imports

2.5

1.5

2.0

s

1.0$Billion

0.0

0.5

Exports Imports

5

Source: U.S. Department of Commerce





23/50

Logistics Cost As A Percent of GD

8.5 8.79.3

9.8 9.9 9.4

7.98.3 8.5

2003 2004 2005 2006 2007 2008 2009 2010 2011





24/50


25/50

Total U.S. Business Inventories

2,500 Billions of Dollars

2,000

1,000

,

500

Source: U.S. Department of Commerce, Census Bure





26/50

Inventories Remain High

750

600

650

rs

500

550

MillionsofDolla

400

450

1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1

Retail trade Wholesale trade Manufacturing

9






27/50

The Inventory to Sales Ratio was H

1.50

1.40

1.45

1.30

1.35

1.25

.






28/50

Recap of Inventory Carrying Cost

Inventory carrying costs were up 4 percent in 2012

Interest dropped 6.9 percent as rates fell from 0.13 to 0from 2011 to 2012

Total business inventory levels rose 4 percent in 2012

Taxes, obsolescence, depreciation, and insurance incre

The cost of warehousing was up 7.6 percent in 2012

6.0

3.0

4.0

5.0

cent

Interest Rat

0.0

1.0

2.0Per

11

Source: Board of Governors of the Federal Reserve Sy





29/50

The U.S. Business Logistics System Co .

$ Bill io

Carrying Costs - $2.269 Trillion All Business Inventory

InterestTaxes, Obsolescence, Depreciation, InsuranceWarehousing

3302130

Subtotal 434

Motor Carriers

Truck IntercityTruck Local

445202

Subtotal 647

Other CarriersRailroads

Water (International 27, Domestic 7)

Oil Pipelines

Air International 13 Domestic 20

72

35

13

33

Forwarders 37

Subtotal 189Shipper Related Costs 10

12

TOTAL LOGISTICS COST 1,33

May not sum to total due to rou





30/50

Truck Tonnage Index

130 Index 2000 = 100

120

125Average Index Value

Average Index Value

110

115

105

J F M A M J J A S O N D J F M A M J J A S O

2011 2012

13

Source: American Trucking Associations





31/50

Truck Industry Recap

a es were a or muc o ; onnage up .

Truck capacity is tight and utilization rates are at 9driver shortage persists with greater problems loo

Costs continue to climb, but rates have only inche

Truck sales gained strength, but have not reached

Regulatory issues will affectproductivity

CSA enforces stricter qualifications, newhealth requirements, and hair follicledrug testing has reduced the pool ofe g e r vers

Prospect of EOBRs New Hours of Service rule go into effect

restricting capacity





32/50

2012 Recap for Trucking

Change in Employment and Number ofClass 8 Trucks in Operation

2008 2009 2010 2011 2

General Freight Truck Drivers Class 8 Truc

15

Sources: Bureau of Labor Statistics and R.L. Polk





33/50

2012 Recap for Railroads

Freight revenue increased 4.3 percent

Revenue per ton-mile rose 5.3 percent

Carloadings were down 3.1 percent

Intermodal volume was the second highest on re

-

$13 billion capital spending on road and equipmpercent higher than 2011





34/50

2012 Recap for Maritime

Ocean carriers positions are slowly improving

Global volumes down, carriers have taken hits financially; ratstabilized and announced rate hikes have been hard to main

ow s eam ng s e norm now, w c a s an ex ra wee r

Barge traffic on the inland waterways has been hampereespecially in the summer emergency dredging was neec anne s

Volume down because of drop off in coal and agriculturaaffected by drought in the Midwest

rea a es s pp ng s owe recovery in 2012, after severa

Jones Act in active debate ag

Maritime infrastructure, espec

waterways, is in dire need of iCongress is formulating a com

17

waterways package to addres





35/50

U.S. Ports Performance is Mixed in 2

Port 2012 TEUs

os nge es , ,

Long Beach 6,045,662

New York 5,529,908

Savannah 2,982,471

Oakland 2,344,424

, ,

Norfolk 2,105,887

Houston 1,922,479

Tacoma 1,711,134

Charleston 1,424,673

Source: Individual port reports





36/50

Monthly Tonnage Indicator for Internal W

48

42

44

3638

30

32

2010 2011 2012 2013

Source: U.S. Army Corps of Engineers, Navigation Data





37/50

2012 Recap for Air

Domestic air cargo ton-miles were up 2 percent and in

were down 3.9 percent, for a total drop of 3.6 percent

. .0.1 percent for domestic

U.S. airlines moved more than 48,000 tons of cargo pe

Jet fuel prices were up 2.9 percent

The growth of cargo space in

relative cost advantage is puttingsignificant pressure on all cargo

The cargo jet fleet was reducedby 30 aircraft, yet yield factors

20





38/50

Price Indexes for U.S. International Air

180

160

170

Inbound

130

140

100

110

120

21

Source: Bureau of Labor Statistics





39/50

U.S. Third Party Logistics Marke

133.140

160

103.7

113.6119.0

127.0

107.1

127.3

100

120

76.9

.

60

80$B

illion

20

40

0

2003 2004 2005 2006 2007 2008 2009 2010 201

22

Source: Armstrong and Associates





40/50

U.S. 3PL Market Segments 2012 Net R

Domestic TranspoManagementTotal $63.5 B 4.1%

.

International TranspManagement

$17.9 B

Dedicated Contract C

(DCC)

$11.4B 4

Value-Added Wareh

and Distribution (V

$27.6 B 3





41/50


42/50

GDP Growth and Logistics Cost Gro

GDP Logistics Costs





43/50

Recent Developments

The Institute for Supply Managements manufacturing a

contracted in May, along with new orders, production, aorders latest in a series of indicators that show manu

ropp ng o

Chinas PMI rose after months of decline; however closshows only domestic manufacturing is up, new export obacklog still contracting

Signs of strengthening: New jobs created rose again in May

Existing home sales and residential construction rising in2013

Exports are growing despite the shaky state of the globa

Signs to be watchful of:

Unemployment rate rose





44/50

Truck and Rail Volume in 2013 has Bee

8.0%

4.0%

.

ge

0.0%

2.0%

Percent

Chan

-4.0%

-2.0%

Truck Tonnage Carloads Intermoda

-6.0%Jan Feb Mar Apr

Latest data available fo

27

Sources: American Trucking Associations and Association of Ame





45/50

Cass Monthly Freight Index

2.6

Index of

Dollars Spent for Freight1.24

Index

Freight Sh

2.4

2.5

1.16

1.20

2.1

2.2

2.3

1.12

1.9

2.0

1.04

.

.

2011 2012 2013

.

2011 20

28

Source: Cass Logistics, Cass Freight Index, January 199





46/50

Estimates of Annual Manufacturing G

Percent Change Year Ov

2012Expec

World 2.9 3

Industrialized countr ies 0.4 1

North America 0.4 1

East Asia -1.6 4

Europe 1.8 -

Developing countries 5.4 4

China 10.6 9

Newly industrialized countries 5.7 4

Other developing countr ies 3.7 4

Source: United Nations Industrial Development Agen





47/50

Summing Up

Economy

Expect continued slow growth GDP around or un

While hiring is growing and the unemployed rate isdropping, expect higher or stagnant unemployment

-economy improves and jobs are not keeping up witgrowth

o a p c ure

Most forecasts are currently very gloomy overall

EU continues to have members on the brink

China economy has slowed from double-digit growpercent





48/50

Summing Up

Current economic conditions globally do not support a ro

orders and backlogs are down, manufacturing is falling, Gbeing downgraded

Slow growth will be with us for the next several years: U.will hover well below the 3 percent level needed to cut intunemployment; logistics will still be a bumpy road

Trucking industry capacity problem is a serious issue andplans should be developed by shippers

The U.S. economy is not well insulated from the economof our trading partners and could be dragged down if the

trends

Inventory management techniques are improving and the

period we have endured for almost 5 years





49/50

The Cost of the Business Logistics System in Relation to Gross Domes$ Billion Except GDP

NOMINAL VALUES OF ALL INVENTORY INVENTORY TRANSPOR- ADMINI- TOTAL U.S. INVENTORY TRANSPOR- INV. AS A

GDP BUSINESS CARRYING CARRYING TATION STRATIVE LOGISTICS % OF AS A % OF TATION AS % OF GDPYEAR $ TRILLION INVENTORY RATE COSTS COSTS COSTS COST GDP GDP A % OF GDP 1985 BASE

1981 3.13 747 34.7% 259 228 19 506 16.2 8.3 7.3 154

1985 4.22 847 26.8% 227 274 20 521 12.3 5.4 6.5 100

1990 5.80 1041 27.2% 283 351 25 659 11.4 4.9 6.1 91

1995 7.41 1211 24.9% 302 441 30 773 10.4 4.1 6.0 76

1996 7.84 1240 24.4% 303 467 31 801 10.2 3.9 6.0 72

1997 8.33 1280 24.5% 314 503 33 850 10.2 3.8 6.0 70

1998 8.79 1317 24.4% 321 529 34 884 10.1 3.7 6.0 68

1999 9.35 1381 24.1% 333 554 35 922 9.9 3.6 5.9 66

2000 9.95 1478 25.3% 374 594 39 1007 10.1 3.8 6.0 70

2001 10.29 1403 22.8% 320 609 37 966 9.4 3.1 5.9 58

2002 10.64 1451 20.7% 300 582 35 917 8.6 2.8 5.5 52

2003 11.14 1508 20.1% 304 607 36 947 8.5 2.7 5.4 51

2004 11.87 1650 20.4% 337 652 39 1028 8.7 2.8 5.5 53

2005 12.64 1750 22.3% 390 739 46 1175 9.3 3.1 5.8 57

2006 13.38 1859 24.0% 446 809 50 1305 9.8 3.3 6.0 62

2007 14.03 2015 24.1% 485 855 54 1394 9.9 3.5 6.1 64

2008 14.29 1963 21.4% 420 872 52 1344 9.4 2.9 6.1 55

2009 13.94 1833 19.3% 353 705 43 1101 7.9 2.5 5.1 47

2010 14.50 2018 19.2% 387 769 47 1204 8.3 2.7 5.3 50

2011 15.08 2182 19.1% 417 821 50 1287 8.5 2.8 5.4 51

2012 15.68 2269 19.1% 434 846 51 1331 8.5 2.8 5.4 51 Note: The Bureau of Economic Analysis issued a revised series for GDP which has been incorporated into this table.

Data Sources: National Income and Products Accounts, Bureau of Economic Analysis; U.S. Statistical Abstract, U.S. Department of C

Methodology: Business Logistics: Heskett, Ivie, Glaskowsky. 2nd Edition, 1973 The Ronald Press, New York, NY





50/50

Documents

24th State of Logistics Report (June 2013)