Upload
rtmjr
View
791
Download
3
Tags:
Embed Size (px)
DESCRIPTION
Presentation discussing major logistics / distribution / trucking / warehousing trends in the United States, including import and domestic network changes, current state of industry, and some sustainability issues.
Citation preview
1
Strategic Trends Impacting
Logistics in the United States
Logistics Seminar 2009The Finnish Association of Purchasing and Logistics (LOGY)
Establish United Logistics GroupFebruary 5, 2009; Helsinki, Finland
--------------
Richard Murphy Jr.President & CEO
Murphy Companies&
Immediate Past ChairCouncil of Supply Chain Management Professionals (CSCMP)
Perspective….U.S. Logistics System Cost
2003-2006: Truck Driver Shortage
Impacts
2006-2008: Fuel Price Increase and
Rail Capacity Impacts
Logistics Cost as % of GDPSource: CSCMP State of Logistics 2008
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
NOTE: Steady Rise Since 2003!
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
10.1% of GDP
15%
Increase
2
U.S. Logistics System Cost
Carrying Costs
Interest 103
Taxes, Obsolescence,
& Deprec., Insurance 273
Warehousing 111
487
Transportation
Motor Carriers
Truck - Intercity 455
Truck - Local 216
671
Other Carriers
Railroads 58
Water 38
Oil Pipeline 10
Air 41
Forwarders 30
177
Shipper Related Costs 8
Logistics Administration 54
62
Total Logistics Cost 1397
$ Billions
(CSCMP 2008)
7.95% of TotalU.S Logistics Costs.Up 9.9% from 2006.
10.1% of GDP.Up 7% from 2006.
48% of TotalU.S Logistics Costs.Up 5.9% from 2006.
U.S. Logistics System Cost (in €)
Carrying Costs
Interest 78
Taxes, Obsolescence,
& Deprec., Insurance 206
Warehousing 84
368
Transportation
Motor Carriers
Truck - Intercity 344
Truck - Local 163
507
Other Carriers
Railroads 44
Water 29
Oil Pipeline 7
Air 31
Forwarders 23
134
Shipper Related Costs 6
Logistics Administration 18
24
Total Logistics Cost 1033
€ Billions
(CSCMP 2008)
7.95% of TotalU.S Logistics Costs.Up 9.9% from 2006.
10.1% of GDP.Up 7% from 2006.
48% of TotalU.S Logistics Costs.Up 5.9% from 2006.
3
▪ Why Discuss Warehousing….
• $111B is the cost of warehousing in U.S. (CSCMP)
Equates to $370.00 per person in the USA!!!
U.S. Logistics System Cost
Carrying Costs
Interest 103 343$
Taxes, Obsolescence,
& Deprec., Insurance 273 910$
Warehousing 111 370$
487 1,623$
Transportation
Motor Carriers
Truck - Intercity 455 1,517$
Truck - Local 216 720$
671 2,237$
Other Carriers
Railroads 58 193$
Water 38 127$
Oil Pipeline 10 33$
Air 41 137$
Forwarders 30 100$
177 590$
Shipper Related Costs 8 27$
Logistics Administration 24 80$
32 107$
Total Logistics Cost 1367 4,557$
$ Billions $ per U.S. Person
(CSCMP 2008)
4
U.S. Logistics System Cost (in €)
Carrying Costs
Interest 78 260$
Taxes, Obsolescence,
& Deprec., Insurance 206 687$
Warehousing 84 280$
368 1,227$
Transportation
Motor Carriers
Truck - Intercity 344 1,147$
Truck - Local 163 543$
507 1,690$
Other Carriers
Railroads 44 147$
Water 29 97$
Oil Pipeline 7 23$
Air 31 103$
Forwarders 23 77$
134 447$
Shipper Related Costs 6 20$
Logistics Administration 18 60$
24 80$
Total Logistics Cost 1033 3,443$
€ Billions € per U.S. Person
(CSCMP 2008)
Perspective….U.S. Trucking
• 2.9M Class 8 Tractors in U.S.
• 5.3M Trailers in U.S.
(ATA, most current data is 2006 survey)
5
▪ Perspective….Warehousing
• 5 Billion Sq.Ft of warehousing in U.S. (ProLogis)
▪ Why Discuss Warehousing….
• 5 Billion Sq.Ft of warehousing in U.S. (ProLogis)
Creates a 4.1 feet by 4.1 feet square of space in awarehouse for every man, women and child in theU.S…..all 300,000,000 of us…!!!
4.1 Feet
4.1 Feet
6
▪ Why Discuss Warehousing….• 5 Billion Sq.Ft of warehousing in U.S. (ProLogis)
Floor area equals a 4 foot walkway from hereto the Moon…!!!
U.S. Economy…..….During Current Recession
All transportation modesdropping capacity FAST…!!!
7
Trucking Industry…..
Cumulative decrease in loads fromJune 2008 to December 2008
Trucking Industry…..
….Capacity Reductions….
Carrier bankruptcies growing
Source: Wall Street Journal 12/11/2008
8
Trucking Industry…..….Capacity Reductions….
Equipment Sell-off - Trucking companies sell-off
of tractor equipment overseas growing
Trucking Industry…..….Capacity Reductions….
Lane Selection - Trucking companies have become very
selective in what lanes they will accept freight to reduce“deadhead” miles driven and keep equipment moving.
9
Trucking Industry…..….Capacity Reductions….
Truck driver shortage - still a major factor;
current recession merely a lull in the storm
Driver Turnover
Trucking Industry…..
….CapacityReductions….
Truck driver shortage – Today’s
drivers older then average workerand retiring fast…!!! New driversmust be age 25 by insurance reg’s.
Rail industry hassame issue of enginedriver retirements &shortage
10
Rail Industry….….Trucking is not Alone….
Container &Rail Car TrafficDown….
….But Investmentin InfrastructureUp…
UP Railroad
BNSF Railroad
• Represents 25% of total warehouse space in U.S.
• Represents 25-33% of total warehouse cost in U.S.
• Grew 8-12% / year consistently for past 10 years.
• Expect 6-8% / year growth over next three years.
• The industry is not significantly feeling the
effects of the current slow economy…!!!
• $37.5 Billion - gross revenue of 3PL’s / Logistics Co’s warehouse / distribution only sector.(Armstrong 2008)
• 8000 for-hire public / contract warehouse buildings in US. (Armstrong 2008)
• 900 for-hire public / contract warehouse companies. (Armstrong 2008)
Outsourced Warehouse / 3PLIndustry….
11
More Warehouses (vs. Fewer)…???• Last 10-15 yrs trend has been fewer and bigger warehouses. 3-5 Total.
• TQM, ERP, JIT / Lean Manufacturing & lower fuel cost driven!
Existing
Trends Influencing U.S. Logistics
More Warehouses (vs. Fewer)…???
• Growing impact of “big-box” retailers
• Less backroom stock space.
• Pushing inventory up-stream to suppliers.
• Reducing the cash flow tie-up a key factor.
• Demanding frequent replenishment and
smaller orders.
Trends Influencing U.S. Logistics
12
4
Source: U.S. Department of Commerce, Census Bureau
Source:US Dept ofCommerce,Bureau ofEconomicAnalysis &CSCMP Stateof Logistics2007.
Trends Influencing U.S. Logistics
What’s Happened to the Order Profile…???
“Old 80:20 Rule”
Trends Influencing U.S. Logistics
13
North America “Mega-Regions”– Network analysis further impacted by these growing regions
Trends Influencing U.S. Logistics
Rotman School of Management,University of Toronto
Continued Impact of Eastern U.S…..
Trends Influencing U.S. Logistics
Source: The Tioga Group
14
Highway System....
….CongestionImpacts
2020
2035
Source: U.S. Department of Transportation, FederalHighway Administration, Office of FreightManagement and Operations, Freight AnalysisFramework.
Rail Rebirth….….Key Realities
• More Energy Efficient
• Lower Emissions
• Lower Cost
• Longer Timelines
• At Max Capacity
• Intermodal Growth High
• Doesn’t Provide Local P&D
Trends Influencing U.S. Logistics
15
Intermodal• Growing to offset rising diesel
prices and congested
seaports.
• “Intermodal is a core
growth opportunity for
the railroads…but they
must adapt to the
expectations of typical
truckload customers”Steve Weiby, VP, CH
Robinson.
Trends Influencing U.S. Logistics
COFC- “Container-on-Flat-Car”
TOFC- “Trailer-on-Flat-Car”or “Piggy-back”
• Intermodal• Running into “NIMBY”
• Community opposition and “not-in-my back-yard”
• Pushing transload yards out from city.
Chicago: 56 miles out
Dallas/Fort Worth: 42 miles out
Trends Influencing U.S. Logistics
16
Rail Box Car Influences• 1 Box-car handles 3-4 truck loads!
• Since the 1970s most new warehouses have not beenbuilt with rail siding!
Select Public/Contract/3PL Warehouse Companies are nowone of the few places to get rail access.
Trends Influencing U.S. Logistics
Rail Transload Centers• Major Railroads establishing “Rail Transload
Partners” across the country with: Indoor warehouse unloading / loading
• Food and Paper Industry
Outdoor rail yards for unloading / loading
• Lumber / Forest Products Industry
• Murphy is a Rail Transload Partner and handlesover 10,000 rail cars / yr.
• Rails Served w Facilities: BNSF, CN, CP, UP & MNCommercial
Trends Influencing U.S. Logistics
Murphy’s NorthtownLogistics Campus
17
Rail Influences• Growing Volume
• Rail congestion impact– Slower Trains
Railroad Average line-haul speed (mph)
20.0
21.0
22.0
23.0
24.0
25.0
26.01
99
9Q
3
19
99
Q4
20
00
Q1
20
00
Q2
20
00
Q3
20
00
Q4
20
01
Q1
20
01
Q2
20
01
Q3
20
01
Q4
20
02
Q1
20
02
Q2
20
02
Q3
20
02
Q4
20
03
Q1
20
03
Q2
20
03
Q3
20
03
Q4
20
04
Q1
20
04
Q2
20
04
Q3
20
04
Q4
20
05
Q1
20
05
Q2
20
05
Q3
20
05
Q4
mp
h
Revenue ton-miles(billions)
300.0
320.0
340.0
360.0
380.0
400.0
420.0
440.0
1999
Q3
1999
Q4
2000
Q1
2000
Q2
2000
Q3
2000
Q4
2001
Q1
2001
Q2
2001
Q3
2001
Q4
2002
Q1
2002
Q2
2002
Q3
2002
Q4
2003
Q1
2003
Q2
2003
Q3
2003
Q4
2004
Q1
2004
Q2
2004
Q3
2004
Q4
2005
Q1
2005
Q2
2005
Q3
2005
Q4
Billio
ns
ofT
on
s
Source: Bureau ofTransportation Statistics
Trends Influencing….U.S. Logistics
Trends Influencing….U.S. Logistics
Rail Congestion
18
Urban Land Prices - Pushing Out Logistics Centers These are the sites typically found in the suburban industrial parks.
Minneapolis Costs:
1994: $1.00 - 1.25 / sq.ft.
2007: $4.50 – 6.00 / sq.ft.
…..500+ % increase in 10 years!
Impact –Pushing Logistics centersout further, thus increasingtransportation costs andcongestion.
Trend especially evident inChicago, New Jersey,California, Dallas.
Trends Influencing U.S. Logistics
Where To FindWarehousesToday…??? Growth of Large
Logistics Parks &Corridors
Regional EconomicDevelopment Drivers.
Big DC Campuses can’t beclose to big cities, but theyalso can’t be too far out…!!!
19
Construction Costs….”SOARING…!!!”• Example: Construction costs in Minneapolis Market for new warehouses
…. 73+% Increase since 2000 (8 Years)..!!! Cost per square foot ( at 200,000 sq. ft. & larger):
$22 - $24 (2000)
$38 - $45 (2008)
• Current recession has lowered construction costs only slightly.
This pricing is not unique to Minneapolis.
Typical of entire U.S.
Trends Influencing U.S. Logistics
Fuel Prices….
($/Gallon)
Source: Department of EnergySource: Department of Energy
Trends Influencing U.S. Logistics
Diesel Prices: 1994-2008
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
Ju
n-9
4
Ju
n-9
5
Ju
n-9
6
Ju
n-9
7
Ju
n-9
8
Ju
n-9
9
Ju
n-0
0
Ju
n-0
1
Ju
n-0
2
Ju
n-0
3
Ju
n-0
4
Ju
n-0
5
Ju
n-0
6
Ju
n-0
7
Ju
n-0
8
Pri
ce
Pe
rG
all
ion
20
“No trucking capacity has been added
after the perfect storm of 2000.
The risk vs. return & return on invested capital is very poor….
….no more juice to squeeze out of the fruit.”WERC Conf 4/23/07
“The 2004/2005 capacity problem will pale in comparison
to the upcoming capacity crunch after the economy recovers!National Press Club, 6/18/2008
Jim O’NealPresidentO&S Trucking
Why are Jim’s statements important…???
Trends Influencing U.S. Logistics
Freight TransportationModal SharesIn Domestic Tonnage
69%
7%1% 0%
15% 10%
0%
70%
15%
9%7% 2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Truck Rail Pipeline Water RailIntermodal
Air
2005
2017
U.S. Commercial Freight Activity By %Sources: Cureau of Transportation Statistics
& U.S. Freight Transportation Forecast to…2016
0%
10%
20%
30%
40%
50%
60%
70%
80%
Truck Rail Pipeline Water Multimodal Air
1993
1997
2002
2004
2016
Source: U.S. Freight Transportation Forecast to…2017
Trucking Capacity Issue Will PlagueTrucking Capacity Issue Will Plaguethe Economy for Years!the Economy for Years!
21
Trends Influencing U.S. Logistics
Network Cost + Carbon Footprint Reduction….
Trends Influencing U.S. Logistics
Source: MIT 10-2008
22
Network Cost + Carbon Footprint Reduction….
Trends Influencing U.S. Logistics
Source of last 3slides: MIT
Consolidation….….Old Concept – Renewed Interest
• Growing interest by “individual”shippers to:
• Consolidate multiple orders to a region.
• Wait till enough product ordered to shipfull loads.
• Utilize cross-dock operations to deliverlocally.
• Growing interest by “groups” ofshippers:
• Consolidate orders together to build fullloads for direct TL shipment or to across-dock facility.
Trends Influencing U.S. Logistics
23
More Warehouses (vs. Fewer)..???
• Additional forces at work…. Fuel price impacts – order size, frequency of
replenishment, etc.
Growth of Lean Manufacturing and JIT plantsupport.
Consumer trend toward “wewant it now!.”
SKU Proliferation…
Trends Influencing U.S. Logistics
More Warehouses (vs. Fewer)…???• Trade-off of….
Higher inventory costs, lower carbonfootprint, more warehouse locations, etc.
vs.Rising transportation costs,
capacity constraints, security, etc.
The economics are shifting…!!!
Trends Influencing U.S. Logistics
24
More Warehouses (vs. Fewer)…???Serious consideration being given to increasing number of warehouse points.
Where 3-5 network of warehouses was cost effective….. today many arelooking at becoming a 6-10 network of warehouses.
Existing
New DC
New Cross-Dock
Trends Influencing U.S. Logistics
U.S. Import Network
Global Supply Chains….Impacts on U.S.
Source: The Tioga Group
25
Implications of offshore sourcing/ manufacturing:
• Less manufacturing space needed in USA
• More DC / warehouse spaceneeded in USA
Distance adds time and moresafety stock requirements
Resulting in changingdistribution patterns in US.
Global Supply Chains….Impacts on U.S.
Historic Domestic Oriented Networks….….vs. New Import Oriented Networks
Internal source of product flows evolved over past 20 years to today’simport focused product flows.
Large shippers like Wal-Mart are also beginning to affect warehouse locations in order tofeed their huge complexes.
Global Supply Chains….Impacts on U.S.
26
Global Supply Chains….Impacts on U.S.
Import Transportation• Asia to USA (7000 miles by ocean):
$1800.00 - $0.26 / Mile
• LA Port to Chicago (1750 miles byintermodal): $2000.00 - $1.14 / Mile
Panama Canal• Land cost portion is pushing many to
consider ocean voyages through thePanama Canal for better access to eastcoast and gulf ports.
• In 2008 – 25% of U.S. imports flowedthrough the Panama Canal.
• 2014 - Panama Canal should be wideenough for largest ships.
Global Supply Chains….….Impacts on U.S.
• Growing congestion and new clean air
mandates for LA Ports are forcing many
to look at alternative ports and inland
routes: Prince Rupert in Canada
& Mexican Ports
27
Global Supply Chains….Impacts on U.S.
“NorthwestPassage”….
• People are starting to talk about
the feasibility in 10 years of the
“Northwest Passage” being
open for container ships.
• Caused by warm arctic watersmelting the ice.
• Will create a potentiallyshorter route to east coastand St. Laurence Seawayports.
“NorthwestPassage”….
…. + “NortheastPassage”for Europe?
Source: The Economist, Jan. 3, 2009 Issue,p7 of Special Report on the Sea.
28
Global Supply Chains….Impacts on U.S.
Port Congestion and High Fuel Price Impacts….
….Creation of Inland Ports
Rail / truck / ocean….….integration hubs
Examples include:• Chicago
• Cincinnati
• DFW / Texas
• Kansas City
• Memphis
• Atlanta
Locations: Up to 100 miles fromocean ports with services generallyprovided by 3PL’s.
• Resulting from:• land shortages near seaports
• Transportation efficiencies delivered bymaturing intermodal and rail industries.
• Activities include transloading,repack and labeling.
• Example: 6 - 40’ containers = 4- 53’ trailers
Global Supply Chains….Impacts on U.S.
Port Congestion and High Fuel Price Impacts….
– ….Creation of Import Warehouses
29
Import Containers….“Maersk Effect”• No longer want their containers inland.
• Pricing reflects penalty for not transloading near port
• 1st ocean carrier to implement these rules.
• Others analyzing due to box and handling costs – will lead to growth intransload service industry.
Global Supply Chains….Impacts on U.S.
“Short-Sea” Shipping - To handle increasing port and highway
congestion “Short-Sea” Shipping is growing along the east coast and gulf -practice is common in other parts of the world.
Port of Hong Kong Example – Note localbarge and unloading of regional ship forfurther distribution.
Global Supply Chains….Impacts on U.S.
30
“Short-Sea” Shipping….
Global Supply Chains….Impacts on U.S.
73% experienced Logistics disruptions past 5 years 94% of these reported impacts affected profitability & customer expectations.
(Accenture)
Control Tower Visibility….the need is growing…!!!
Global supply chains are long & complex!
Change from “Push” to “Demand” driven models.
“Time intolerance” growing in supply chain strategies and
consumer expectations.
Global Supply Chains….Impacts on U.S.
31
Imports….
Impacts of
Fuel Cost
Global Supply Chains….Impacts on U.S.
Source: WSJ, 6-13-2008, page A1
Can long supply chains still be cost effective?
”Near Sourcing”….
• Factors influencing re-evaluationof offshore manufacturing: Energy costs – esp. in logistics /
transportation
Complexity of supply chains andvisibility issue
Long lead times
Excess inventory required
Larger carbon footprints – “Green”movement impact
Product Quality Controls
Available labor pools in selectcountries
Impact in China from growinginternal consumer market (vs.export market)
Global Supply Chains….Impacts on U.S.
32
Focus changing from labor cost per hour to….
….greater focus on total landed cost….
Global Supply Chains….Impacts on U.S.
Network evaluation becoming more important….
Global Supply Chains….Impacts on U.S.
Source: MIT 10-2008
33
Network evaluation – Case Studies….
Global Supply Chains….Impacts on U.S.
Network evaluation – Case Study….
Source: MIT 10-2008
Global Supply Chains….Impacts on U.S.
34
“Made in America…..Once Again”• DC Velocity Viewpoints web letter February 28 2008
Mitch MacDonald, Group Editorial Director.
• Corporations are abandoning their myopic focus onhourly wages.
• Looking to USA again because it offers:
Skilled labor force
Automated manufacturing technology
Strong transportation infrastructure
Proximity to world’s largest market
Political stability
Global Supply Chains….Impacts on U.S.
Many investors see “green” practices as areflection of good management practices.
Wall Street Impact on Green
Green Trends Influencing U.S. Logistics
“Eco”• ….Eco-nomics
• ….Eco-logy
35
Major corporations - “Green” Initiatives
• Warehouse / DC Performance Measure:
….100% Order Accuracy
Traditional Focus: ….Customer satisfaction.
Green Focus: …to avoid redelivery and thus
reduce carbon emissions.
Green Trends Influencing U.S. Logistics
Major corporations - “Green” Initiatives
• Warehouse / DC Performance Measure:
….Zero Customer Order Complaints
• Traditional Focus: …do whatever it takes to
make customer happy!...order minimums are noproblem…delivery ASAP!
• Green Focus: …increasing order minimums
to reduce delivery frequency, and longer orderlead times to facilitate transportationconsolidation.
Green Trends Influencing U.S. Logistics
36
Energy Creation Measures
• Wind power units – rooftop units (individual fans or
horizontal row of blades at roof edge to capture air flow rising upand over building, & stand alone tower units.
Green Trends Influencing U.S. Logistics
Solar Power StationsLarge available flat areas - “just sit there” - Solar panels not a great load factor
• Commercial solutions include:
“Solar Energy Service Provider” who provides 100% responsibility todesign, build, own and operate the asset - including all upfront purchase andinstallation costs.
…..to solutions where building owner owns the solar assets.
Whole Foods Store, CA
Staples Store
Green Trends Influencing….….U.S. Logistics
2 SolarProviders:
37
Need to keep in mind theinland waterways as atransportation option.
Trends Influencing….….U.S. Logistics
Economic Comparison….
Trends Influencing U.S. Logistics
38
▪ Implications….• CEO / CFO’s - discovered the power of Supply Chain
Management.
• Wall Street• Watching industry dynamics
• Logistics industry represents 10.1% of the economy, and growingdue to fuel prices.
• Supply Chain Managers – still searching for balance ofefficiency & customer service.
• Visibility – growing need as Supply Chains have become morecomplex and long. Transportation / Logistics providers will have to meetrequirements.
• Mode Integration Growing – more and more interfacebetween ocean / rail / truck / river modes.
Trends Influencing U.S. Logistics
▪ Implications….• Fuel Prices
• Will remain higher than tradition.
• Forcing changes to Supply Chain Networks – domestically andglobally.
• Supply Chain Network Design• Growing interest in more DC and Crossdock locations.
• Likely to see 6-10 DC/Warehouse networks (vs. 3-5 which wascommon since the late 1980’s).
• Trucks Will Remain a Major Player• Trucks are expected to continue to handle 60-70% of all freight.
• Most freight involving rail / ocean / river is handled by trucks atbeginning & end of movements.
• Railroads are making a comeback – and will play agreater role in the future.
Trends Influencing U.S. Logistics
39
▪ Implications….• Global Supply Chains
• More cargo will arrive at gulf & east coast ports
• Growth of “Inland Ports” and “Import Warehouses”
• These two trends are creating large Logistics Centers in keyinland markets.
• “Made in America” is receiving serious consideration again.
• Green Logistics is in…!!!• “Green” seen as a reflection of good management.
• Could lead to less service & options for shippers.
• Will likely lead to a “slow-down of logistics velocity.”
• “Consolidation / Pool Distribution” will likely come back in popularityamongst shippers.
Trends Influencing U.S. Logistics
Strategic Trends Impacting
Logistics in the United States
Logistics Seminar 2009The Finnish Association of Purchasing and Logistics (LOGY)
Establish United Logistics GroupFebruary 5, 2009; Helsinki, Finland
--------------
Richard Murphy Jr.President & CEO
Murphy Companies&
Immediate Past ChairCouncil of Supply Chain Management Professionals (CSCMP)