Conference Board's perspective on the Q3 "growth" spurt. Personally, I cannot imagine GDP continuing to grow when we are at 9%+ unemployment. Just the simple economist in me coming out.
Conference Board Report
Saturday, November 19, 2011
Supply Chain Executives Define Social Media Too Narrowly
Supply Chain Executives Define Social Media Too Narrowly
A good post and one which I responded to. Please click on link and look for comment from Kevinaom. A very timely and interesting topic.
Learnings Through Logistics' Visits
I had a great week visiting with many logistics providers and trying to get insight into just exactly what is going on in this business. Some will tell you the business is collapsing due to low demand, some believe the transportation business is ripe for a great uptick in profitability due to constrained capacity (the jury is still out, in my mind, on whether this is artificial or not), some believe it is all just the same.. we are moving around the margins.
I get conflicting signals. For example, everyone tells me the driver shortage is wildly acute and we run the risk of just not having enough capacity to service the industry because of a lack of drivers. Many say if the GDP stays above 2.5% or greater then we will just not have enough capacity to service the shipper market. However, using "Econ 101" this would tell me driver wages should be increasing. That is not the case. Driver wages are flat.
The next question is whether the increase in intermodal actually is absorbing the otherwise demand for driver capacity? This seems to be a plausible answer. Container capacity is up 10% to 20% (depending on who you talk to) and this means those containers have to be filled. They will not let them just pile up in a container yard. Add to the fact that many shippers are lowering their point of indifference of choosing between trucks and IM (Indifference is the length of haul in miles where a shipper sees the two as interchangeable) and more shippers are choosing IM on more lanes. Obviously, this reduces the need for drivers on long haul runs.
So, data is really mixed. The analysts are all saying most of these companies (public) are "fairly valued" and the industry should not be overweighted in a stock portfolio. Projections for pricing have been reduced (early this year most were claiming a 4% price increase but that does not seem to be happening) and capacity has freed up.
The one caveat? Last year we were saying this same thing and the market for trucks and transportation went on fire in the first quarter. So, this post did not give you an answer (sorry) but may have provided some things to think about.
I get conflicting signals. For example, everyone tells me the driver shortage is wildly acute and we run the risk of just not having enough capacity to service the industry because of a lack of drivers. Many say if the GDP stays above 2.5% or greater then we will just not have enough capacity to service the shipper market. However, using "Econ 101" this would tell me driver wages should be increasing. That is not the case. Driver wages are flat.
The next question is whether the increase in intermodal actually is absorbing the otherwise demand for driver capacity? This seems to be a plausible answer. Container capacity is up 10% to 20% (depending on who you talk to) and this means those containers have to be filled. They will not let them just pile up in a container yard. Add to the fact that many shippers are lowering their point of indifference of choosing between trucks and IM (Indifference is the length of haul in miles where a shipper sees the two as interchangeable) and more shippers are choosing IM on more lanes. Obviously, this reduces the need for drivers on long haul runs.
So, data is really mixed. The analysts are all saying most of these companies (public) are "fairly valued" and the industry should not be overweighted in a stock portfolio. Projections for pricing have been reduced (early this year most were claiming a 4% price increase but that does not seem to be happening) and capacity has freed up.
The one caveat? Last year we were saying this same thing and the market for trucks and transportation went on fire in the first quarter. So, this post did not give you an answer (sorry) but may have provided some things to think about.
Friday, November 18, 2011
Home Construction Will Be Muted - Bad News for Logistics Providers
I think we have all learned over the last few years why home construction is always looked at by economists. It is probably the single biggest indicator of the health of the economy. When people buy homes all sorts of things happen:
This drives all sorts of logistics activities - warehousing and most importantly, transportation volume. Transportation is inbound into the manufacturing plants which gear up for the activity and outbound finished goods going to all those new homes.
OK, now we know why this is so important. This is also why it is depressing to hear home construction will be muted for a while - most likely 5 -8 years. The inventory is just too high and there are still a lot of adjustable rate mortgages to reset in 2012. Not a good sign.
For those of you who say, "Yes, but those staying in a home will remodel" I would say this "rule" (if it ever was one) does not hold up anymore. The reason is most people, intuitively, know they are now living in a depreciating asset and not an appreciating asset. Remodeling makes sense in the latter as it is much like a bank account. However, in the former remodeling is like buying a consumable product which has no sustainable value. People know this intuitively and will not, in total, increase dramatically their major remodeling (assuming they are sane and rational).
Sorry to be the bearer of bad news.
- Construction materials are bought
- People are employed en masse
- Peripherals are purchased (appliances, lights, drapes etc.)
- Landscaping is performed...
This drives all sorts of logistics activities - warehousing and most importantly, transportation volume. Transportation is inbound into the manufacturing plants which gear up for the activity and outbound finished goods going to all those new homes.
OK, now we know why this is so important. This is also why it is depressing to hear home construction will be muted for a while - most likely 5 -8 years. The inventory is just too high and there are still a lot of adjustable rate mortgages to reset in 2012. Not a good sign.
For those of you who say, "Yes, but those staying in a home will remodel" I would say this "rule" (if it ever was one) does not hold up anymore. The reason is most people, intuitively, know they are now living in a depreciating asset and not an appreciating asset. Remodeling makes sense in the latter as it is much like a bank account. However, in the former remodeling is like buying a consumable product which has no sustainable value. People know this intuitively and will not, in total, increase dramatically their major remodeling (assuming they are sane and rational).
Sorry to be the bearer of bad news.
Thursday, November 17, 2011
Saturday, July 9, 2011
What Does the Economic News Tell Us
Things are slow and everyone is in a "wait and see" mode is what I believe these numbers are telling us. Unemployment stayed high at above 9% (9.2%) while all orders (durables and non-durables) increased slightly from manufacturers. The question of course is did that result in sales or did it result in inventory? We shall see as companies report their 2d qtr earnings.
In my mind the equation is fairly simple: No jobs and no job growth leads to a lot of uncertainty which leads to consumers not spending which starts the "death spiral". Tax cuts for the wealthy will not put people back to work as the wealthy can make a lot of money right now "trading paper" and they do not need to open factories and stores.
The real scary thing is the fact that the one economic engine which has driven even the meager recovery (if you can call it that) we have had so far is Government spending. Now we will see what happens when the Government retrenches spending in a recessionary environment. I think we know the answer and it is not a good one.
The Government is playing with fire and unfortunately they are going to have to be burned to have them learn the lesson of implementing contraction policies in a time of a no growth economy.
In my mind the equation is fairly simple: No jobs and no job growth leads to a lot of uncertainty which leads to consumers not spending which starts the "death spiral". Tax cuts for the wealthy will not put people back to work as the wealthy can make a lot of money right now "trading paper" and they do not need to open factories and stores.
The real scary thing is the fact that the one economic engine which has driven even the meager recovery (if you can call it that) we have had so far is Government spending. Now we will see what happens when the Government retrenches spending in a recessionary environment. I think we know the answer and it is not a good one.
The Government is playing with fire and unfortunately they are going to have to be burned to have them learn the lesson of implementing contraction policies in a time of a no growth economy.
Tuesday, July 5, 2011
Monday, July 4, 2011
Hybrid Cars and Reverse Logistics
Took a ride in my new Hybrid Ford Fusion yesterday and as always, everything causes me to think about logistics. First, I will have a "call out" to Ford Motor Company as this is an incredible car. Write me if you would like more information but suffice to say, I am thrilled about the automobile (and the 39.5mpg I had driving to Chicago).
OK, but the one issue (if there is one) with Hybrids is there is a giant battery pack in the back of the car. As others have asked (rightfully so), "what happens when that dies"? Ah, this is where the reverse logistics industry comes in. There will have to be a way to recover the batteries, ship to a central point and a way to disassemble and recycle the components. A big business just waiting to be started.
A quick google shows Toyota (as you would expect) has started a service like this and I am sure others will follow. Amazing how new needs are created, then people fill those needs and all of it requires logistics!
OK, but the one issue (if there is one) with Hybrids is there is a giant battery pack in the back of the car. As others have asked (rightfully so), "what happens when that dies"? Ah, this is where the reverse logistics industry comes in. There will have to be a way to recover the batteries, ship to a central point and a way to disassemble and recycle the components. A big business just waiting to be started.
A quick google shows Toyota (as you would expect) has started a service like this and I am sure others will follow. Amazing how new needs are created, then people fill those needs and all of it requires logistics!
Sunday, July 3, 2011
10X Logistics Now in Mobile Form
If you like to read my blog 10xLogistics, you will like it even better now that it is easily accessed from your iPhone or other mobile device. If you just save the bookmark 10xlogistics.blogspot.com and go to it from your mobile device you will get a very readable format optimized for the smartphone environment.
Enjoy!!
Enjoy!!
Logistics Report Out
I have read the new report on the "state of logistics and I have a few thoughts. First, we have to figure out how to make the report more relevant. The logistics' industry is under tremendous change right now and to have a report on 2010 come out in the summer of 2011 is tough. All the verbiage around what is happening in the transportation industry is almost not worth reading beyond just good history.
Second, it does forecast for 2011 correctly but it probably is a bit late in its prediction. The report says rates will change dramatically in late 2011. Well, we have gone through a cycle already in 2011 where rates changed a lot in Q1 and now the economy has put the brakes on thereby changing the capacity / demand equation just in the last few months. I think however capacity has finally come out faster than demand has slowed resulting in a still favorable environment for carriers. Intermodal is still on fire.
Real estate is still very weak. It is not hard to find great warehousing deals but, of course, who the hell wants a warehouse!
Overall, if there were a measurement of whether the "shipper" or the "carrier" are in control, I would say it definitely is favoring the carrier at this point. Shippers will need to ensure they have a good strategy in place to manage carriers and also work with good regional carriers. I have found a lot of value in the regional carriers and the value they can provide. Do not always just default to the "big 5". There are other great players out there and as the "big 5" regionalize their operations they lose the competitive advantage against the local players.
More to follow but it is very interesting times to say the least.
Second, it does forecast for 2011 correctly but it probably is a bit late in its prediction. The report says rates will change dramatically in late 2011. Well, we have gone through a cycle already in 2011 where rates changed a lot in Q1 and now the economy has put the brakes on thereby changing the capacity / demand equation just in the last few months. I think however capacity has finally come out faster than demand has slowed resulting in a still favorable environment for carriers. Intermodal is still on fire.
Real estate is still very weak. It is not hard to find great warehousing deals but, of course, who the hell wants a warehouse!
Overall, if there were a measurement of whether the "shipper" or the "carrier" are in control, I would say it definitely is favoring the carrier at this point. Shippers will need to ensure they have a good strategy in place to manage carriers and also work with good regional carriers. I have found a lot of value in the regional carriers and the value they can provide. Do not always just default to the "big 5". There are other great players out there and as the "big 5" regionalize their operations they lose the competitive advantage against the local players.
More to follow but it is very interesting times to say the least.
Sunday, March 27, 2011
The Business of Investing
Ok, I know this is a logistics blog but I also have a passion for business in general so I thought I would write very quickly about investing. Warning: I am a Jack Bogle, index investor who believes there is absolutely no way to beat the market in the long run. I am reading "Don't Count on It!" by Jack Bogle and he summarizes the simplicity of investing in this way:
A return on a stock / equity investment is simply the addition of:
1) The economics (i.e., growth rate plus dividend yield) and...
2) Speculation / Emotion - This is essentially the change in the P/E ratio over or under the long term averages.
For P/E, he basically says if P/E is under 10 then it is clearly likely to increase and if P/E is around 20 it will likely decrease (of course as all good indexers remind you, you just never know when!).
Applying this very simply, here is what I think of what your or my expectation of stock market returns should be right now:
1) Growth of the entire market is about 2 - 4% (i.e., the GDP0
2) Dividend yield is (Using the vanguard total market ETF as proxy): 1.76%
This means you can plan on "enterprise" returns of 3.76% to 5.76%. However, the P/E is 8.04 which means you are likely to pick up an additional 2% or so in "emotional or speculative" returns as the P/E reverts to the mean. So, you should plan on about 5-10% returns on stocks with the middle ground being most likely. That is a normal expectation.
A return on a stock / equity investment is simply the addition of:
1) The economics (i.e., growth rate plus dividend yield) and...
2) Speculation / Emotion - This is essentially the change in the P/E ratio over or under the long term averages.
For P/E, he basically says if P/E is under 10 then it is clearly likely to increase and if P/E is around 20 it will likely decrease (of course as all good indexers remind you, you just never know when!).
Applying this very simply, here is what I think of what your or my expectation of stock market returns should be right now:
1) Growth of the entire market is about 2 - 4% (i.e., the GDP0
2) Dividend yield is (Using the vanguard total market ETF as proxy): 1.76%
This means you can plan on "enterprise" returns of 3.76% to 5.76%. However, the P/E is 8.04 which means you are likely to pick up an additional 2% or so in "emotional or speculative" returns as the P/E reverts to the mean. So, you should plan on about 5-10% returns on stocks with the middle ground being most likely. That is a normal expectation.
Impact of High Diesel prices.. Get Ready
Owner operators will exit the business, the "big 3" will get bigger, everything will cost a lot more. Get ready.
Impact of high Diesel prices.
Impact of high Diesel prices.
Sunday, March 13, 2011
Government to Buy EOBRs for Mexican Trucks
I saw this a few days ago when it was revealed but had not commented until now. My first reaction was what a disgrace. How can our tax dollars be used to fund Electronic On Board Recorders (EOBR) on Mexican trucks when US trucking companies are making the investment themselves? Further, what is the point of this and how will it be managed?
I just read Brian Straight's article over at Fleet Owner titled Tax Dollars Wasted on Mexican Truck EOBRs and there was a bit of a different spin here. Could this provision be a "poison pill" placed into the agreement by the US Government knowing it will cause huge outcry? While that is possible, I do not give them that much credit. I really believe someone in our Government thought this would help the cause by showing how we will be able to track these trucks. The enforcement just seems massive and the costs outrageous.
In the end, I do not think we will see many of these trucks coming across the border as it is just too complicated. But, time will tell and if the American trucking industry gets out of hand in terms of cost and low capacity, I suppose this will become our relief valve.
I just read Brian Straight's article over at Fleet Owner titled Tax Dollars Wasted on Mexican Truck EOBRs and there was a bit of a different spin here. Could this provision be a "poison pill" placed into the agreement by the US Government knowing it will cause huge outcry? While that is possible, I do not give them that much credit. I really believe someone in our Government thought this would help the cause by showing how we will be able to track these trucks. The enforcement just seems massive and the costs outrageous.
In the end, I do not think we will see many of these trucks coming across the border as it is just too complicated. But, time will tell and if the American trucking industry gets out of hand in terms of cost and low capacity, I suppose this will become our relief valve.
The Logistics Daily is Launched
Get a compilation of my twitter feeds (@logisticsexpert/logisticsindustry) in a newspaper form at the Logistics Daily.
Japanese Tragedy Brings Importance of Logistics to The Front
There has been a raging debate going on over at Linkedin about whether Logistics has lost its importance and luster in the corporation. I think the devastating tragedy in Japan will put this to bed once and for all as it is clear logistics will drive the recovery in that Country.
For the GIS folks who believe logistics has been displaced with information flow, I would love to see you get water, food, fuel and recovery needs to people who need it with an iPad and some code. What will solve Japan's crisis and help people in need are trucks, truck drivers, warehouseman and "boots on the ground" not computers.
This puts this debate to bed in my mind. Computers are a tool for the people who will actually do the work recovering.
My heart and prayers are with the people of Japan AND with those courageous people who will risk their lives to get the food, fuel and medical supplies to those who desperately need it.
For the GIS folks who believe logistics has been displaced with information flow, I would love to see you get water, food, fuel and recovery needs to people who need it with an iPad and some code. What will solve Japan's crisis and help people in need are trucks, truck drivers, warehouseman and "boots on the ground" not computers.
This puts this debate to bed in my mind. Computers are a tool for the people who will actually do the work recovering.
My heart and prayers are with the people of Japan AND with those courageous people who will risk their lives to get the food, fuel and medical supplies to those who desperately need it.
Saturday, March 5, 2011
Back to Square One - Mexican Carriers in the US
Well, we are back to square one... what was the point of that? Mexican Carriers Will Be allowed in US
Very Interesting Article in NYT: Does Technology REDUCE The Need for Education?
This is really interesting and it may apply in the logistics' field. Paul Krugman asks the question if technology reduces the need for an eduction ? He also cites an article in today's NY Times about software which is making a lot of junior lawyers and paralegals' jobs obsolete (combing through documents during the discovery phase). This article is titled: Armies of Expensive Lawyers, Replaced by Cheaper Software.
So, the question this poses for all of us is as supply chain software gets ever so sophisticated will it reduce the need for much of the higher education currently being used in supply chain management (i.e., Masters in Supply Chain Management, Ops research, etc.). This is also being debated right now over at Linkedin. Logistics and supply chain will continue to be extremely important in the firm and the overall structure of a corporation, the question is will the people managing it be that important?
So, the question this poses for all of us is as supply chain software gets ever so sophisticated will it reduce the need for much of the higher education currently being used in supply chain management (i.e., Masters in Supply Chain Management, Ops research, etc.). This is also being debated right now over at Linkedin. Logistics and supply chain will continue to be extremely important in the firm and the overall structure of a corporation, the question is will the people managing it be that important?
Wednesday, December 29, 2010
Lack of Posting.. will "Step it up" in 2011
As many return readers have noticed, I have not posted much in a while. Call it the "holday spirit" and understand I have been swamped both with work and with preparing for the holidays. No excuse, it just is what it is. I will be aggressively posting in 2011 with both longer "in depth" posts about subjects and also short "link" type posts as well.
My belief for 2011 for the logisitics' industry is that it will be a year of "blocking and tackling". This means cost cutting will continue to be paramount along with using logistics as a "wrapper" around a product to become the competitive differentiator. As I have said before, many products have worked their way to commodities and the way companies will truly differentiate themselves is through logistics.
But, this is not "fancy" logistics. It is the basic blocking and tackling. Make the order management system very efficient, have availability (my belief is have high availability on a tighter number of SKUS v. having thousands of SKUS which all suffer in some availability), have a lightening fast delivery system, and have the billing and invoicing system be flawless. It is the things of Amazon.com and we all know how successful they have become. (although I will admit they have figured out how to have great availability on huge number of SKUs which really differentiates them).
As 2011 develops we will see if I have to move off my "playbook" but for now that is how I intend to work through the year. Let's see how we do!!
Have a happy Holiday Season and a very happy New Year!!
Kevin
My belief for 2011 for the logisitics' industry is that it will be a year of "blocking and tackling". This means cost cutting will continue to be paramount along with using logistics as a "wrapper" around a product to become the competitive differentiator. As I have said before, many products have worked their way to commodities and the way companies will truly differentiate themselves is through logistics.
But, this is not "fancy" logistics. It is the basic blocking and tackling. Make the order management system very efficient, have availability (my belief is have high availability on a tighter number of SKUS v. having thousands of SKUS which all suffer in some availability), have a lightening fast delivery system, and have the billing and invoicing system be flawless. It is the things of Amazon.com and we all know how successful they have become. (although I will admit they have figured out how to have great availability on huge number of SKUs which really differentiates them).
As 2011 develops we will see if I have to move off my "playbook" but for now that is how I intend to work through the year. Let's see how we do!!
Have a happy Holiday Season and a very happy New Year!!
Kevin
Saturday, November 20, 2010
UPS: We ♥ Logistics Commercial
While a great ad for UPS it also says it all about why I love logistics!
Sunday, November 14, 2010
Supply Chains Used As An Extension of The Brand - Part 1
This week I am going to put some thoughts down about whether companies use their supply chain as an extension of their brand or just as an evil necessity that they would rather do without. I have personally been involved in many companies and I have seen it done many ways.
Here are some characteristics of supply chains when used in the following manner:
1) Used as an extension
Can anyone think of a company that makes their supply chain experience part of the brand v other companies which make it just a back office function?
Here are some characteristics of supply chains when used in the following manner:
1) Used as an extension
- Company does not separate the product from the acquisition experience for the customer. They are intertwined.
- Company puts protection of brand above all else (including cost).
- Company probably does not do a lot of outsourcing in supply chain (Do you want your brand in another person's hands?).
- Company cross trains between marketing, sales, product development and supply chain.
- Company is most likely not "stovepiped". In other words they are not organized around functional silos but rather around products, categories of products or channels / customers.
- The reverse of everything above.
- The customer gets additional feeling of benefiting when dealing with the supply chain.
- Service is matched to the brand experience the company is going after
- Supply Chain is seen as a cost to be cut.
- The big one: When people in the commercial side of the business refer to themselves uniquely as "the business" and the supply chain is just something to execute at the lowest cost imaginable.
Can anyone think of a company that makes their supply chain experience part of the brand v other companies which make it just a back office function?
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