I found it fascinating that he believes we will "slog along" until Q3 of 2013. I think this was about as direct as I have heard an industry leader speak about the "flat lining" of the transportation industry recently.
Monday, November 12, 2012
Bill Graves on Fox Business
Bill Graves, the head of the American Trucking Association (ATA) does a nice job on Fox Business discussing the impact of Sandy, the readiness of the transport industry and the future of the industry.
I found it fascinating that he believes we will "slog along" until Q3 of 2013. I think this was about as direct as I have heard an industry leader speak about the "flat lining" of the transportation industry recently.
I found it fascinating that he believes we will "slog along" until Q3 of 2013. I think this was about as direct as I have heard an industry leader speak about the "flat lining" of the transportation industry recently.
U.S. Overtakes Saudi Arabia in Oil Production by 2030 - IEA
This is a fascinating statement and it shows how disruptive technology (i.e, the ability to extract tight oil and shale oil / gas) will really turn the world energy markets on their head. The International Energy Agency (IEA) has two reports out. The first (as reported by Bloomberg) describes how the US will overtake Saudi Arabia in oil production. Some interesting statistics:
- Last Month Saudi Arabia pumped 9.8 million barrels per day; The US 6.7 million - very close.
- US production this year will be highest since 1991.
- 83% of the US domestic oil needs were met with domestic oil supplies in the first 6 months of 2012.
The second report (again as reported by Bloomberg) tells us by 2030 natural gas will be the predominant source of energy in the United States as it will be plentiful and cheap. Both of these are incredible developments given just a few years ago people were talking about "Peak Oil".
I will add a bit of commentary on sustainable practices. I hope we as a country are wise enough to see these developments as incredible luck which gives us time to move to a more sustainable way to power our economy. If we use this as a way to get "cheap energy": which then makes the business case for sustainable energy not economically viable then we will have squandered a huge opportunity.
Also, as I have stated before, do not confuse "energy independence" with "cheap oil". The oil prices will almost always be at world levels because if they are not then the energy will simply be exported rather than consumed in the US.
The impact on transportation will be clear:
- Oil supplies abundant
- Oil prices at world levels (i.e., no "cheap oil")
- Movement to natural gas will continue.
A Good After Action Review (AAR) for Logistics Companies Post Sandy
A neat article in Reuters today titled "Transport, Logistics Weather Sandy Well Despite Glitches" calls out the great work the trucking and logistics industry is doing in Sandy. Specifically, the good news is the industry learned from Katrina and has developed very good playbooks to deal with big storms and natural disasters:
On Veterans day, we thank all the veterans who have served this Nation. I would also say if companies are preparing to work in disaster stricken areas there is no better person to lead these efforts than a veteran.
"Freight transportation company triage playbooks have been evolving with a series of disasters, including Hurricane Katrina.
By the time Sandy hit, trucking and logistics companies had topped off gas tanks, bought or rented back-up generators to power distribution and fueling centers, and shipped relief and manufacturing supplies to the Northeast that customers would need after the storm. During the storm and in the days after, these companies and East Coast railroads diverted shipments away from the hardest-hit areas and found alternative delivery options for customers"This is good news as we know these disasters will not only increase with frequency but also with severity and the fact the industry is preparing for them is a great service to the US.
On Veterans day, we thank all the veterans who have served this Nation. I would also say if companies are preparing to work in disaster stricken areas there is no better person to lead these efforts than a veteran.
Saturday, November 10, 2012
Rail Volume for Week 44 Down - Hurricane Sandy
Association of American Railroads released week 44 on Thursday and as expected volumes were down significantly. However, anyone who graphs and analyzes this data closely will need to asterisk this week forever as Hurricane Sandy drove most of it.
The data shows a 4.8% decrease in container traffic versus week 44 of 2011. This can only be explained by the Hurricane and embargo of certain locations. Container traffic through week 44 increased 5.6% for the year showing the increased volumes will continue and, as expected, trailer traffic on the rails continues its decline in favor of the more efficient COFC.
Overall ton miles are down both for the week and for the year and the driving factor for this is Coal. Coal is down substantially and while petroleum products are up due to all the shale oil it is not enough, on a ton mile basis, to offset the decrease in coal.
The story continues to unfold despite the blip due to Sandy:
The data shows a 4.8% decrease in container traffic versus week 44 of 2011. This can only be explained by the Hurricane and embargo of certain locations. Container traffic through week 44 increased 5.6% for the year showing the increased volumes will continue and, as expected, trailer traffic on the rails continues its decline in favor of the more efficient COFC.
Overall ton miles are down both for the week and for the year and the driving factor for this is Coal. Coal is down substantially and while petroleum products are up due to all the shale oil it is not enough, on a ton mile basis, to offset the decrease in coal.
The story continues to unfold despite the blip due to Sandy:
- COFC is up
- TOFC is down
- Overall ton miles are down
- Coal down
- Petroleum up dramatically.
Cap and Trade Launches in California
It is finally here in the United States with California launching their carbon market on November 14th. On November 14th, California Air Resource Board (CARB) will launch the selling of 21.8 million carbon allowances to be bought by stationary carbon emitters (plants, utilities etc.). Distributors of transportation fuels and natural gas will come in 2015.
This offset mechanism is supposed to have the desired effect of putting a market mechanism in place which will allow rules of economics to force companies to either lower their carbon emissions or pay a price. Presumably, the price will get high enough where there can be business cases made to implement new technologies or new conservation programs which will drive down the emission of green house gases. The ultimate goal is to get CO2 down to 1990 levels even with presumed growth of the economy.
To give an idea of the pricing mechanism below is a graph from Point Carbon which reflects the prices, per metric tonne, of CO2 allowances currently trading in the very illiquid California market.
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| Source: Point Carbon |
You can see the carbon allowances are trading on the low end of the scale. The point of injecting the allowances by the state is to give a shot of liquidity to the market to get the market functioning better. Best estimates are they will sell for between $10 - $12 per metric tonne and we will see on November 14th how it all pans out.
This mechanism is similar to the European market already in place and this will make the California market the 2d largest market in the world.
Like it or not, I think the evidence is clear: 1) CO2 is causing climate change. 2) Human activity is producing excess CO2 3) We must reduce CO2. Given all of this using rules of economics to create a market which "prices" bad environmental behavior is the right way to go. People will either have to pay the price and continue the bad behavior (that money would be used by others to clean up after the bad behavior person) or they will use the economics to create business cases to create projects to fix / lower their carbon emissions.
The issue here of course is anytime the government creates a "currency" out of thin air their is huge opportunity for abuse. However, there are mechanisms to solve that abuse potential, or at least make it not in their best interest to execute the potential corruption, and those mechanisms should be researched, implemented then fine tuned before we decide to end what will be a great program.
Of course, this will come with the obligatory law suits on both sides so we will wait and see how this all turns out. Bottom Line: If you are a transportation provider or transportation user you should watch this closely because in 2015 it will impact your business. You will be participating either directly or indirectly.
Thursday, November 8, 2012
XPO Logistics - Insane Growth?
I just read a great article on XPO logistics which is growing their brokerage business very dramatically. I have been close to this company since it was just Express-1 and the leadership had the foresight to see the potential growth in brokerage. They started this business at exactly the right time and now it is the fastest growing part of the business.
As you can see from the graph below (Source: Seeking Alpha) the revenues from brokerage are really taking off. The other key point I draw from this graph is they have a really nice mix of business.
I think this is a company to watch very closely and it is at a major point. They clearly have shown they have the capability to bring in acquisitions and grow the revenue. Like most companies in a major growth period they are losing money but I do believe in the leadership and the strategy of the company.
As you can see from the graph below (Source: Seeking Alpha) the revenues from brokerage are really taking off. The other key point I draw from this graph is they have a really nice mix of business.
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| XPO Logistics |
As a shipper, I have always loved doing business with companies in this sweet spot. Big enough to do what I need them to do, they are willing to invest and yet they are small enough that you are a big player in their portfolio. You generally get much better attention and you have the ability to be a core customer regardless of size.
I could be wrong but I had the same feeling about Coyote Logistics when it was much smaller and so my intuition tends to be pretty good on these things. Watch XPO.
Sunday, November 4, 2012
The Logistics of Fuel in Post Sandy
I recently read a quote from Boone Pickens where he said there was plenty of fuel but no electricity to pump it. I remember in the Army we had "retail tankers" which could fuel up retail trucks and cars ( and tanks) right from the tankers.
I wonder why we don't have this capability as part of homeland security? Seems this would be core to what is needed during extended times of power outages for whatever reason.
I hope we involve experienced logisticians in a detailed and non emotional review of what can be done to mitigate suffering in the future.
I wonder why we don't have this capability as part of homeland security? Seems this would be core to what is needed during extended times of power outages for whatever reason.
I hope we involve experienced logisticians in a detailed and non emotional review of what can be done to mitigate suffering in the future.
Wednesday, October 31, 2012
Add Google To The Same Day Delivery Frontier
I have blogged a few times on what appears to be a growing number of companies interested in executing same day delivery. At Logisticsviewpoints.com, Adrian Gonzalaz tells us to add Google to the list of those who want to try their hand at this.
I understand the push and I understand in large dense cities this may be something people want and will pay for. Other than that, I am not sure the value in this.
I understand the push and I understand in large dense cities this may be something people want and will pay for. Other than that, I am not sure the value in this.
Good Discussion of Unilever Sustainable Living Plan
I found this a very enlightening and exciting presentation relative to the Unilever Sustainable Living Plan. Clearly they have a plan and are executing against it.
"The Logistics Failures Will Not Be Repeated" - Part Two
Note: This is Part 2 of a Two Part Series Concerning Logistics Lessons Learned in The Israeli National Defense Forces (IDF). You can read Part 1 here.
This entry deals with an article I read which discussed the logistics failures of the Israeli Defense Forces (IDF) in the last Lebanon War. I felt the article really applied to what I see as a common business cycle where a business sees success then begins feeling certain elements are not "core" to the business and logistics almost always becomes one of those items. The business sheds / outsources / under invests in the logistics centers. Inevitably, something happens where logistics becomes a necessary requirement and the company finds out they no longer have the capabilities which they had originally and which may have actually been core to the success.
Having been caught flat footed the business rushes to reinvest and the cycle starts all over again.
The IDF found themselves executing this same cycle. Prior to the Second Lebanon war they had stopped investment and training in the logistics forces, they were not seen as core and their capabilities atrophied to dangerous levels. Once they went into Lebanon and the IDF literally had soldiers dying of thirst they realized how wrong they were. This part of my two part article (Again, you can read part 1 here ) discusses the solutions.
The first item they had to fix was the competency of the forces in terms of both training and equipment. Due to under investment the logistics forces were the last to get equipment and the last to be invested in for training. This was fixed and the "competency" level was raised to above 90%.
A second and very interesting development was the organizational structure they adopted as a result of the learnings during the second Lebanon War. The reorganization is described:
In business we see this all the time in organizations where logistics is subordinate to a brand or a commercial part of the business. Yes, there are great examples of enlightened marketing and commercial general managers who fully understand the competitive advantage of a great logistics team but mostly they under invest because they push all the money to brand, product development and advertising. They develop a great product, generate huge demand but find their ability to move to market in a timely and efficient manner is limited.
The IDF essentially bypassed this organization and had the Logistics Corps reporting to equally high levels in the organization. This sends the right signal to the commanders and not only gives logistics a "seat at the table" but actually makes them "equals" at the table.
Finally, the IDF established a policy whereby no plans for military action are created without detailed logistics plans built along side the war plans (read: Logistics plans built along side the commercial plans). This made the ground commanders (read: Commercial General Managers) equally responsible for the logistics successes (and by default responsible for any failures) of an entire operation. They stated:
Concluding Lessons:
There are so many lessons to be learned here by companies and here is my summary:
This entry deals with an article I read which discussed the logistics failures of the Israeli Defense Forces (IDF) in the last Lebanon War. I felt the article really applied to what I see as a common business cycle where a business sees success then begins feeling certain elements are not "core" to the business and logistics almost always becomes one of those items. The business sheds / outsources / under invests in the logistics centers. Inevitably, something happens where logistics becomes a necessary requirement and the company finds out they no longer have the capabilities which they had originally and which may have actually been core to the success.
Having been caught flat footed the business rushes to reinvest and the cycle starts all over again.
The IDF found themselves executing this same cycle. Prior to the Second Lebanon war they had stopped investment and training in the logistics forces, they were not seen as core and their capabilities atrophied to dangerous levels. Once they went into Lebanon and the IDF literally had soldiers dying of thirst they realized how wrong they were. This part of my two part article (Again, you can read part 1 here ) discusses the solutions.
The first item they had to fix was the competency of the forces in terms of both training and equipment. Due to under investment the logistics forces were the last to get equipment and the last to be invested in for training. This was fixed and the "competency" level was raised to above 90%.
A second and very interesting development was the organizational structure they adopted as a result of the learnings during the second Lebanon War. The reorganization is described:
"Most importantly, following the war, the Logistics Corps was removed from the responsibility of the Ground Forces Branch (to which it had been subordinate a short while before) and once again, became subordinate to the GHQ Logistics Directorate. In addition, we established unified responsibility in the field of logistics – from the GHQ to the level of the individual soldier"What they found was when the logistics corp was subordinate to the operational forces (ground forces) they were almost always going to be ignored or at the most they would receive just minor investments as they would always be considered "non-core".
In business we see this all the time in organizations where logistics is subordinate to a brand or a commercial part of the business. Yes, there are great examples of enlightened marketing and commercial general managers who fully understand the competitive advantage of a great logistics team but mostly they under invest because they push all the money to brand, product development and advertising. They develop a great product, generate huge demand but find their ability to move to market in a timely and efficient manner is limited.
The IDF essentially bypassed this organization and had the Logistics Corps reporting to equally high levels in the organization. This sends the right signal to the commanders and not only gives logistics a "seat at the table" but actually makes them "equals" at the table.
Finally, the IDF established a policy whereby no plans for military action are created without detailed logistics plans built along side the war plans (read: Logistics plans built along side the commercial plans). This made the ground commanders (read: Commercial General Managers) equally responsible for the logistics successes (and by default responsible for any failures) of an entire operation. They stated:
"Beyond that, the logistics issue was incorporated in all IDF operational plans. Today, no plan is drawn and no exercise is conducted without fully incorporating logistics planning. During the Second Lebanon War, many IDF commanders did not consider logistic issues a part of their responsibility, mainly because they had become accustomed, over many years of low intensity combat operations in the territories, to a state where logistics support was delivered to them, all the way to the end units on the ground. Now, IDF commanders understand that as part of conducting combat operations, they must be responsible for logistic supplies on the ground, and that without logistics, their combat operations cannot be continued.”Again, think how many businesses do not incorporate logistics into their overall product development plans or do not incorporate them early enough to matter. When decisions are made in terms of size, channel distribution, packaging, final assembly etc is when logistics people should be at the table helping and providing input. I call this "Design for Logistics"™ Many times companies get the logistics group involved after all these decisions are made and find out they have developed a "Frankenproduct" which will clog existing logistics networks.
Concluding Lessons:
There are so many lessons to be learned here by companies and here is my summary:
- Understand logistics is core to what you do and can provide competitive advantage if you properly invest.
- Even if you outsource do not "throw it over the wall". You need to manage and involved your outsourced partners as if they were part of your organization.
- Involve Logistics groups at the very beginning of the design and product development phase in a method I call "Design for Logistics"™
- Think about the organizational structure. Whatever organizational structure you select ensure the leaders of logistics have equal say and are not subordinate to the commercial organization unless you are absolutely sure the commercial leader will not ignore or under invest in the logistics capabilities.
- Invest in training and development of the logistics groups just as you do the commercial side.
It seems these lessons have to be learned over and over again and it is good to reemphasize them. Thank goodness lives are not on the line in business as they are in the military so the cost of not learning these lessons are only measured in dollars versus lives. However, if a company is going to grow and prosper, they ignore these lessons at their own peril.
Sunday, October 28, 2012
More on The Pickens Plan
Good interview with Boone Pickens about oil and oil independence. I just warn all the readers that oil independence does not equate to cheap oil. Oil and the refined products will always be priced at a world price. If we get too cheap, it will just be exported.
I still think oil independence is something we should do.
ATA September Tonnage Report; AAR Rail Loadings
The ATA has issued their September tonnage report and the results are as expected - flat at best (increased.4% after an August decrease of .9%). The most stunning statement in the report is:
Coming out of the recession you can see the truck tonnage rise but really since the beginning of 2012 it has flattened out substantially. Further, there is a little blip at the end of 2011 which I believe was essentially a "fear trade". A "fear trade" was the beginning of the industry pushing hard to put the "fear of God" into shippers telling them if they do not sign up for premium costs then "when the economy turns" the carrier will abandon their freight. This worked (like all fear trades) for a very short period of time however ultimately rational economics took over and the results are what you see above.
Rail tells a bit of a different story and it is clear the migration from truck to intermodal is occurring at a fast pace. Market share of intermodal v. truck has to be increasing as I personally believe it has become the preferred mode wherever it can be applied. It used to be truck was preferred then people would "look at" intermodal and now I believe it is the exact reverse. Logistics Management magazine said in interviews with shippers at the Council of Supply Chain Management Professionals (CSCMP) Conference - 2012 shippers where now calling intermodal the "go to" mode of freight.
AAR reports while carloads are decreasing in volume, intermodal (IM) is increasing for all major US railroads. For week 42 (ending October 20, 2012) IM containers were up 6.1% yoy and 5.8% for the cumulative through week 42. Trailer on Flat Car (TOFC) continues to show significant declines as the migration to containers continues.
Overall we are seeing a very flat freight market and one which shows no real signs of major pick up through the beginning of 2013. If GDP continues to rise at or around 2% and roughly 10% of that number is "non freight" (i.e., financial etc.) then we will see below 2% growth in freight for the foreseeable future. This is far below the 3% most industry analysts believe is when the real "crunch" will occur.
Unless carriers decide to significantly shrink their business this will mean it will be far more about growing market share than it will be about grabbing more of a growing pie.
"Compared with September 2011, the SA index was 2.4% higher, the smallest year-over-year increase since December 2009. Year-to-date, compared with the same period last year, tonnage was up 3.6%."The smallest increase since 2009 is not a good story for the transportation industry. Combine this with the fact that inventories are somewhat inflated - meaning no real inventory restocking is about to happen - and you realize this year ended very flat for freight and freight movements. Of course, we have been seeing this all along in our "unofficial" indices which I use to gauge freight demand. A couple of instructive trends to look at from the graph:
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| ATA 9/2012 Truck Tonnage Graph |
Rail tells a bit of a different story and it is clear the migration from truck to intermodal is occurring at a fast pace. Market share of intermodal v. truck has to be increasing as I personally believe it has become the preferred mode wherever it can be applied. It used to be truck was preferred then people would "look at" intermodal and now I believe it is the exact reverse. Logistics Management magazine said in interviews with shippers at the Council of Supply Chain Management Professionals (CSCMP) Conference - 2012 shippers where now calling intermodal the "go to" mode of freight.
AAR reports while carloads are decreasing in volume, intermodal (IM) is increasing for all major US railroads. For week 42 (ending October 20, 2012) IM containers were up 6.1% yoy and 5.8% for the cumulative through week 42. Trailer on Flat Car (TOFC) continues to show significant declines as the migration to containers continues.
Overall we are seeing a very flat freight market and one which shows no real signs of major pick up through the beginning of 2013. If GDP continues to rise at or around 2% and roughly 10% of that number is "non freight" (i.e., financial etc.) then we will see below 2% growth in freight for the foreseeable future. This is far below the 3% most industry analysts believe is when the real "crunch" will occur.
Unless carriers decide to significantly shrink their business this will mean it will be far more about growing market share than it will be about grabbing more of a growing pie.
Thursday, October 18, 2012
More On Same Day "Delivery Wars"
My readers know I have been blogging about this, with thoughts on what will work, for almost a week now. I started with a post asking whether Amazon awakened the sleeping giant of Wal-Mart and also wrote about the inherent advantages of scale and dispersion that the United States Post Office possesses in this space.
Note: to follow this story on my blog as it develops make sure to click on the tag: Same Day Delivery.
SCdigest has now written about it (I must admit, I love when I "scoop" a professional journal!) and they are calling it the "same day wars". Not sure I would use the war analogy but it is interesting they see it that way.
My experience has been same day shipping is more a "marketing gimmick" than reality. How many people really cannot afford a quick trip to Wal-mart (which is open 24 hours a day mostly)? Will they really pay $10 to avoid that trip? I think same day shipping ads will draw eyeballs (which is good - creates sales) but when the customer is about to dispense with $10 or $20 extra dollars they will decide a quick car trip could be enjoyable!
Note: to follow this story on my blog as it develops make sure to click on the tag: Same Day Delivery.
SCdigest has now written about it (I must admit, I love when I "scoop" a professional journal!) and they are calling it the "same day wars". Not sure I would use the war analogy but it is interesting they see it that way.
My experience has been same day shipping is more a "marketing gimmick" than reality. How many people really cannot afford a quick trip to Wal-mart (which is open 24 hours a day mostly)? Will they really pay $10 to avoid that trip? I think same day shipping ads will draw eyeballs (which is good - creates sales) but when the customer is about to dispense with $10 or $20 extra dollars they will decide a quick car trip could be enjoyable!
Housing - Good News Bad News for Transportation
First, I want to be clear that one month's data does not make a trend however we all have to be very pleased with the housing numbers yesterday. According to the Wall Street Journal,
This is also good for transportation - in a way. Transportation always gains from housing. It is that simple and quite frankly housing is almost a singular metric for transportation companies to look at when determining the macro movement of the economy. The last huge "boom" in trucking came when the housing market was at a froth of excitement in 2004 - 2006.
Now, for the "bad news". Housing is also right up there with manufacturing as one of the highest employment substitutes for drivers. Drivers can migrate from construction to semi-skilled manufacturing to driving pretty easily and when construction jobs jump, drivers tend to want to move to those jobs. Why do that and not just stay with trucking?
Two reasons help explain this migration between careers. First, the time at home factor is big. If a driver can even come close to replicating their driving income while staying at home they will do that. Second, there really is no "penalty". Most jobs and careers there is a penalty for hopping around such as loss of seniority, pay or other benefits. For the most part (yes there are a few perks for being senior but not many and they are not highly valued relative to time at home) a driver loses nothing by pivoting to construction as they know they can move back to driving anytime they want and they will be welcomed back with a hug and a thank you.
Keep your eyes on these numbers as they develop. If this is the beginning of a real sustained increase in construction and we get anywhere near close to 800K to 1M starts next year then the driver shortage will exacerbate really quickly.
"On Wednesday, the government reported that new home-building levels surged to a four-year high last month, amid a nearly 12% rise in new building permits. "As we all know, housing drives a lot of activity or "velocity" in the economy because along with a house comes a lot of other ancillary purchases such as appliances, furniture, drapes etc. Housing also is a "mood" indicator because, generally speaking, people do not buy houses unless they feel fairly stable about their economic situation. For these reasons, and I am sure a lot more, having housing move like this is a fantastic sign. The Wall Street Journal even went so far as saying this movement may vindicate all the maligned recent activity by the Fed.
This is also good for transportation - in a way. Transportation always gains from housing. It is that simple and quite frankly housing is almost a singular metric for transportation companies to look at when determining the macro movement of the economy. The last huge "boom" in trucking came when the housing market was at a froth of excitement in 2004 - 2006.
Now, for the "bad news". Housing is also right up there with manufacturing as one of the highest employment substitutes for drivers. Drivers can migrate from construction to semi-skilled manufacturing to driving pretty easily and when construction jobs jump, drivers tend to want to move to those jobs. Why do that and not just stay with trucking?
Two reasons help explain this migration between careers. First, the time at home factor is big. If a driver can even come close to replicating their driving income while staying at home they will do that. Second, there really is no "penalty". Most jobs and careers there is a penalty for hopping around such as loss of seniority, pay or other benefits. For the most part (yes there are a few perks for being senior but not many and they are not highly valued relative to time at home) a driver loses nothing by pivoting to construction as they know they can move back to driving anytime they want and they will be welcomed back with a hug and a thank you.
Keep your eyes on these numbers as they develop. If this is the beginning of a real sustained increase in construction and we get anywhere near close to 800K to 1M starts next year then the driver shortage will exacerbate really quickly.
Tuesday, October 16, 2012
More on 3D Printing
I had recently written thoughts on 3D printing (3D Printing - Don't Reduce Costs - Eliminate Them) and how I thought this could revolutionize how products get to market. There are a lot of great things about this technology which will improve our lives however I definitely had a logistics and transportation slant to my reporting.
Yesterday, Steve Faktor at Forbes wrote how 3D printing is also a big opportunity for HP to reinvent themselves [ and this technology]. Read more about this and keep abreast of this technology. I assure you this technology will change our lives eventually.
Yesterday, Steve Faktor at Forbes wrote how 3D printing is also a big opportunity for HP to reinvent themselves [ and this technology]. Read more about this and keep abreast of this technology. I assure you this technology will change our lives eventually.
Why Transportation Stocks Are So Important
In my last post I reported (and linked) to an article about transportation stocks and what the "warnings" mean which have been issued recently. The graph below from the Wall Street Journal and this article really define why it is so important and why we need to follow these stocks not just because we are logisticians but because we follow the economy in general.
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| Graph from Wall Street Jounal |
Macroeconomic Monday® - Mixed Results Last Week
Last week could have been a "Seinfeld" week where it was the week about nothing. It was a very bad week (worst since June) for the stock market as people continue to anticipate poor earnings and forecasts for even slower earnings. It then had some nuggets of macroeconomic data which essentially said things were "flat".
I do want to start with the Producer Price Index. The PPI went up by 1.1% ("Core" PPI held flat) v. an expected value of .7%. As can be seen in the graph below, this is a bounce back from the beginning of a decline. It is difficult to see how a recession could be in the near future when there is such inflation at the PPI (unless you think the increase is due to speculators hoarding commodities:
This will be an interesting trend to watch to see if we continue to have inflationary pressure at the PPI level which ultimately will need to come into the CPI or will be a drag on corporate earnings.
Inventory to Sales Ratio:
The vaulted inventory to sales ratio was released on Monday October 15 so I thought I would include it in this week's report. First, why is this number so important? What it shows is whether companies are building inventory or are they lowering inventory. If they are building inventory it is a signal that the economy is slowing since it usually takes a few months for companies to adjust to lower sales. There is seasonality to these numbers and for sure they are not adjusted for prices (if prices go up the value of the inventory goes up but the quantity does not) but it is still a great indicator to watch.
The graph shows this has increased over the last few months and it had started coming down but this month it actually increased ever so slightly. This is a clear indication the economy is "tilting" to slowing down and inventory is building. What do companies do when inventory starts building? They lay people off, slow down factories and slow down 2d and 3d tier purchases.
This is a key metric to follow and if you are not sure why just look at what happened during the recession - it ballooned.
Jobless Claims:
Initial jobless claims came in lower than expected (339K v. 370k expected) however I am going to let these numbers "mature" before I make any conclusions. There has been a lot of "noise" in these numbers lately so I am going to see some trends. By the way, I do not subscribe to the conspiracy theories related to these numbers but rather understand there are real statistical reasons why the numbers are moving around. Let's see how it develops in the next few weeks.
Transportation Data:
In the last couple of weeks many indices have shown the transportation freight is slowing dramatically and rates have not only stabilized but in some cases are showing year over year declines. Transportation executives have "warned" already about slowing freight volumes and the inventory to sales ratio reported above would support the decrease in freight volumes in the future. All in all the story is not great for the near future for freight volumes. This report from Reuters a few weeks ago titled Dow Transports Raise Warning Flag For US Economy says it best:
Advantage:
Clearly the data is showing a continued advantage for the shipper. This is another week of Slight Advantage: Shipper®. Last week also reported this measurement so it is clear the extreme tightening of capacity and drivers and its effects on rates is being offset by the slowing economy and the potential for a slowing economy (yes, the negative feedback loop actually will effect this even more).
I do want to start with the Producer Price Index. The PPI went up by 1.1% ("Core" PPI held flat) v. an expected value of .7%. As can be seen in the graph below, this is a bounce back from the beginning of a decline. It is difficult to see how a recession could be in the near future when there is such inflation at the PPI (unless you think the increase is due to speculators hoarding commodities:
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| FRED® PPI Index |
Inventory to Sales Ratio:
The vaulted inventory to sales ratio was released on Monday October 15 so I thought I would include it in this week's report. First, why is this number so important? What it shows is whether companies are building inventory or are they lowering inventory. If they are building inventory it is a signal that the economy is slowing since it usually takes a few months for companies to adjust to lower sales. There is seasonality to these numbers and for sure they are not adjusted for prices (if prices go up the value of the inventory goes up but the quantity does not) but it is still a great indicator to watch.
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| FRED® Inventory to Sales Ratio |
This is a key metric to follow and if you are not sure why just look at what happened during the recession - it ballooned.
Jobless Claims:
Initial jobless claims came in lower than expected (339K v. 370k expected) however I am going to let these numbers "mature" before I make any conclusions. There has been a lot of "noise" in these numbers lately so I am going to see some trends. By the way, I do not subscribe to the conspiracy theories related to these numbers but rather understand there are real statistical reasons why the numbers are moving around. Let's see how it develops in the next few weeks.
Transportation Data:
In the last couple of weeks many indices have shown the transportation freight is slowing dramatically and rates have not only stabilized but in some cases are showing year over year declines. Transportation executives have "warned" already about slowing freight volumes and the inventory to sales ratio reported above would support the decrease in freight volumes in the future. All in all the story is not great for the near future for freight volumes. This report from Reuters a few weeks ago titled Dow Transports Raise Warning Flag For US Economy says it best:
"Transportation and logistics companies are also worried. At least seven of them - FedEx, Norfolk Southern, UTi Worldwide (UTIW.O), Swift Transportation Co (SWFT.N), Arkansas Best Corp (ABFS.O), XPO Logistics Inc (XPO.N) and Werner Enterprises Inc (WERN.O) have scaled back their profit forecasts in recent weeks. United Parcel Service Inc (UPS.N) led the pack when it cut its outlook in July."Morgan Stanley, Bank of America and others who follow the transportation industry clearly are indicating a slowing transportation spend and all the macroeconomic data would support that theory.
Advantage:
Clearly the data is showing a continued advantage for the shipper. This is another week of Slight Advantage: Shipper®. Last week also reported this measurement so it is clear the extreme tightening of capacity and drivers and its effects on rates is being offset by the slowing economy and the potential for a slowing economy (yes, the negative feedback loop actually will effect this even more).
Sunday, October 14, 2012
Could The Post Office Be The Big Winner in Same Day Delivery?
An interesting development in the "same day delivery wars" which has been brewing as of late with Amazon and Wal-Mart. The key question is who is going to do this from a delivery standpoint and who can do it at a very low cost?
Already, the USPS gets something to you for about .45 cents which FEDEX may charge you $5.00 or more. Granted, they get it faster however with just a small amount of pre-planning you can change that $5.00+ charge to .45. Most of what FEDEX is charging us for is a premium for our inefficiency and lack of planning.
Enter the USPS in the same day shipping. As we know, the infrastructure costs for same day shipping are massive (advantage Wal-mart over Amazon since Wal-Mart has essentially 4500 distribution centers) and thus usually make it economically impractical. The USPS has some interesting, already in place, advantages:
This should be fun to watch!
Already, the USPS gets something to you for about .45 cents which FEDEX may charge you $5.00 or more. Granted, they get it faster however with just a small amount of pre-planning you can change that $5.00+ charge to .45. Most of what FEDEX is charging us for is a premium for our inefficiency and lack of planning.
Enter the USPS in the same day shipping. As we know, the infrastructure costs for same day shipping are massive (advantage Wal-mart over Amazon since Wal-Mart has essentially 4500 distribution centers) and thus usually make it economically impractical. The USPS has some interesting, already in place, advantages:
- Huge infrastructure - generally an office in every town regardless of size
- Already mandated to go to just about every house every day in the Country
- Will pick up as well as delivery and usually without an appointment.
- If you are not home, the trip to the USPS is generally very short (FEDEX for example has pulled out of my small town. If I am not home when a FEDEX shipment comes and I want it I have to drive 1/2 hour to get it.. my post office is less than 1 mile away)
This should be fun to watch!
"The Logistic Failures Will Not Be Repeated" - Part 1
Note: This is Part 1 of a Two Part Series Concerning Logistics Lessons Learned in The Israeli National Defense Forces (IDF)
I came across the this fascinating article which chronicles the poor performance of the logistics group within the Israeli National Defense Forces (IDF) during the 2d Lebanon war in 2006. Literally, Israeli soldiers were suffering from dehydration due to a lack of drinking water in the Country right next to their own and one which they easily can beat militarily. Brigadier General Itzik Cohen, the head of the Logistics Branch for the IDF's Technology and Logistics Division said the following about this horrendous situation:
Why did this happen to a one of the most proficient militaries in the world? We learn the issue is very similar to the problem in business. Here are some reasons cited in this article:
The life cycle of a company's organizational structure relative to logistics is very similar to the experience cited in this article with the IDF. This life cyle looks like the following:
I came across the this fascinating article which chronicles the poor performance of the logistics group within the Israeli National Defense Forces (IDF) during the 2d Lebanon war in 2006. Literally, Israeli soldiers were suffering from dehydration due to a lack of drinking water in the Country right next to their own and one which they easily can beat militarily. Brigadier General Itzik Cohen, the head of the Logistics Branch for the IDF's Technology and Logistics Division said the following about this horrendous situation:
"During the Second Lebanon War, there was no shortage of logistic items. We had sufficient inventories of food, water and ammunition. The problem was that the items did not reach the forces that needed them."Translate this into a business problem which we see all the time: The company has a better product and can readily produce it but the problem is they cannot get it through distribution to the customers who need it when they need it (Availability of product is at least two dimensional: Quantity and time). Think about this in relation to the infamous "Black Friday" events. There is a lot of demand, there is a lot of promotion (think of promotion as the invasion) but the company cannot get the product to the market. Last year, one company even canceled orders admitting they would never get the product to market.
Why did this happen to a one of the most proficient militaries in the world? We learn the issue is very similar to the problem in business. Here are some reasons cited in this article:
"In the summer of 2006, the IDF disbanded the divisional logistic groups that were responsible for resupplying combat divisions... The issue of logistics, so it seemed, was of low priority for commanders, and the result was reports of hungry and thirsty troops deep inside hostile territory."Does that sound familiar? Logistics is a "low priority" for commanders? Translate this into business and think how many times logistics is an "afterthought" to the people who generally run a consumer company (sales, marketing, finance and merchandising). Of course, there are great companies, like Wal-Mart who fully understand logistics is in fact core to the success of the company.
The life cycle of a company's organizational structure relative to logistics is very similar to the experience cited in this article with the IDF. This life cyle looks like the following:
- Business is Going Well - All is in Balance
- Times get tough - Cut "Non Core", Logistics is seen as "Non-Core"
- Things start getting better
- Product has high demand, logistics is under developed, sales and marketing say "If only logistics was better we could sell the product"
- Company invests in logistics
After 5, the cycle starts all over again. This is a common life cycle of a company and it appears a very common life cycle of a defense force.
My next post will discuss how the IDF solved this problem with what appears to be some real "10X Solutions".
Friday, October 12, 2012
Has Amazon Awakened The Sleeping Giant? - Walmart Same Day Delivery
I think one thing a lot of industries and companies have regretted is taking on Walmart. Circuit City tried, Toys 'R Us tried and others continue to try. Little 'ole Amazon was sitting very nicely with a great business dealing with parcel delivery in a few days. However, that was not good enough.
They now want to turn their vast and sophisticated network of distribution centers into same day fulfillment centers. There are pros and cons to this and clearly it is a very expensive proposition. Except for the most densely populated areas, same day delivery is cost prohibitive. It is especially prohibitive if you have a normal central distribution point system. Distribution centers like Amazon has are designed to service large service areas - like 250 mile radius and are too big to blanket the Country with them.
Enter Walmart and their "test" of same day delivery.
Walmart sees the Amazon plans and basically says, "I see your same day delivery and I raise you by 4,500 stores / "Distribution Centers". The interesting part of a Walmart store is the consumer sees it as a retail store yet the smart people in Bentonville see them all as distribution centers. Let's say the average radius around a store is 15 miles before you hit another store. Given this (and I am sure the statistic is available.. this is my guess.. not counting the outlands / badlands etc) you can see the advantage Walmart has and will always have over Amazon in same day delivery. This will remain true unless Amazon wants to go on a mind boggling spree of capital investment to build out stores. My bet is if there truly is a market for same day delivery (which is very questionable) then Walmart wins before Amazon even gets on the field.
A lot of people have lost a lot of money betting against Amazon over the years however this endevor may be a "bridge too far" even for Amazon. My advice: Don't take on Walmart. Find the white space between you and Walmart (as Amazon has done so nicely over the years) and dominate that space.
The war of final mile delivery is about to begin!
They now want to turn their vast and sophisticated network of distribution centers into same day fulfillment centers. There are pros and cons to this and clearly it is a very expensive proposition. Except for the most densely populated areas, same day delivery is cost prohibitive. It is especially prohibitive if you have a normal central distribution point system. Distribution centers like Amazon has are designed to service large service areas - like 250 mile radius and are too big to blanket the Country with them.
Enter Walmart and their "test" of same day delivery.
Walmart sees the Amazon plans and basically says, "I see your same day delivery and I raise you by 4,500 stores / "Distribution Centers". The interesting part of a Walmart store is the consumer sees it as a retail store yet the smart people in Bentonville see them all as distribution centers. Let's say the average radius around a store is 15 miles before you hit another store. Given this (and I am sure the statistic is available.. this is my guess.. not counting the outlands / badlands etc) you can see the advantage Walmart has and will always have over Amazon in same day delivery. This will remain true unless Amazon wants to go on a mind boggling spree of capital investment to build out stores. My bet is if there truly is a market for same day delivery (which is very questionable) then Walmart wins before Amazon even gets on the field.
A lot of people have lost a lot of money betting against Amazon over the years however this endevor may be a "bridge too far" even for Amazon. My advice: Don't take on Walmart. Find the white space between you and Walmart (as Amazon has done so nicely over the years) and dominate that space.
The war of final mile delivery is about to begin!
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