U.S. Economy Shows Signs of Stalling, Logistics Analyst Says

This story appears in the June 20 print edition of Transport Topics.

WASHINGTON — There are signs the U.S. economy is stalling and could undermine a tenuous recovery for freight haulers, according to the author of a report on logistics costs by the Council of Supply Chain Management Professionals.

Rosalyn Wilson, an economist and author of the “Annual State of Logistics Report,” said here June 15 that key indicators show the economy is “beginning to unravel in some sectors,” and that is leading some analysts to lower growth expectations.

“The current economic picture is not indicative of a strong recovery — in fact it appears that the recovery is losing momentum,” Wilson said.

While some experts predict stronger growth in the second half of the year, Wilson said retail sales remain weak, consumer confidence levels have dropped sharply and business spending and manufacturing are declining.

“All of this translates into reduced freight volumes in the next few months,” she said.

Meanwhile, looking back to 2010, Wilson said her annual report found that business logistics costs rose 10.4% to an estimated $1.2 trillion, an increase of $112 billion from 2009.

While spending on transportation increased by 10.3% last year, Wilson said the volume of freight remains below pre-recession levels.

Transportation accounts for two-thirds of total logistics costs with the remaining costs related to the acquisition and storage of inventory, plus a small amount for logistics administration.

Wilson noted that spending on trucking services rose by only 9.3% in 2010 to $592 billion, while spending on all other transportation modes — railroads, air freight forwarding, water and pipelines — increased by 15.4% to $168 billion.

Jeffrey Pilof, the head of logistics and operations for Macy’s, said in a panel session his company has “dramatically” increased its use of intermodal transportation, and is taking steps to reduce the number of trucks needed to move merchandise by working with carriers to keep trailers fully loaded.

Pilof said the company is also testing the use of RFID tags to provide better information on products that may be on store shelves or in warehouses, reducing the need to store inventory.

Despite prospects for slower growth, Wilson said shippers could find it more difficult to move freight because of a loss of freight hauling capacity.

According to Wilson, more than 16% of truck capacity has been permanently removed since 2006 due to bankruptcies and cutbacks in truck purchases by fleets.

“Capacity is still leaving the market,” he said. “Drivers are difficult to find and keep. The truck order backlog is growing. Operating costs are rising while revenues are steady. And new regulations are on the way that will reduce the productivity of the drivers and trucks they do have.

“Couple this with rising freight volumes and the trucking sector could find itself unable to meet demand,” Wilson concluded.

Another panelist, Joe Gallick, senior vice president of sales for Penske Logistics, offered a more optimistic assessment. He said the economy has been able to absorb higher energy costs and disruptions from the earthquake in Japan and that sufficient freight hauling assets will be provided “when the recovery is fully realized.”

Gallick noted that both sales of used equipment and demand for truck rentals remain strong.

If there is a capacity shortfall, “we will solve it,” he said.