Reader survey findings show concern over possible double-dip recession
Amid the swell of turbulence the economy is riding on, due to an incredibly shaky and unpredictable economic recovery, the downgrading of the United States credit rating and subsequent giant swings in the stock market, it is fair to say logistics professionals are concerned about the possibility of a double-dip recession rearing its ugly head.
But while a double-dip is top of mind, should it come to fruition does not necessarily mean that shippers will be quick to revamp its supply chain operations or logistics planning processes to a large degree—or at all.
These were takeaways from a Peerless Media readership survey, which found that 78 percent—or 266 of the 339 respondents—are concerned that the economy is on the verge of a double-dip recession. In a separate question, 37 percent—or 125 respondents—said that they plan on making changes to their supply chain operations or logistics planning processes, with another 63 percent—or 214 respondents—indicating they have no such plans.
Political gridlock, flat demand and growth, and a stalled employment picture were prevalent in the reasons listed by respondents as to why a double-dip may be on the horizon. Other reasons included the U.S. housing market and consumer confidence, which both remain sluggish, and the financial condition of many European nations.
In terms of how shippers would make changes to their supply chains, the reasons varied from things like reducing inventory, slowing down manufacturing or production operations to simply waiting it out until things get better and the recovery shows more evidence of a sustained recovery.
“Changes we would consider include evaluating supplier capacity, improved delivery time frame—particularly for international suppliers, reviewing internal procedures, earlier adherence to S&OP calendar, and an evaluation of systems we are using,” said a sporting goods shipper.
Other possibilities included things like downsizing the logistics efforts to match customer needs, cease logistics budget planning for any software upgrades or improvements, and looking to cheaper Mexican carriers to replace higher cost U.S.-based carriers.
Another shipper observed that with lower inventory-carrying costs and higher transportation costs, there could be a proliferation of regional warehouses rather than a centralized focus on premium transportation services.
“My clients are making significant changes,” David K. Schneider, president of DKS & Co. “Some are moving more warehousing operations over to 3PLs to shed employees. Some are looking to major mode shift changes, but do not want to invest in the staff or skills to make and coordinate the needed changes. Those shippers are getting seduced by the transportation brokers for the 20 percent cost reduction where the real return could be 50 percent if done internally. A few are listening to us about going for the real return and not fattening the profits for brokers, and others are opting for the fast and easy 15 percent. Sadly, there is so much fair to good talent available in the job market that can execute the tactics with guidance on the strategy that many companies are giving up more return for ease of implementation.”
While shippers are clearly thinking about next steps, there is not a clear sense of panic in the form of major volume declines or job losses as a direct effect of the uneven economy, explained Brooks Bentz, a partner in Accenture’s supply chain practice.
In fact, Bentz said there are some indications that this year’s Peak Season could be better than it was a year ago, coupled with shippers taking a renewed focus in making improvements in the area of supply chain performance.
“That is an ongoing thing; nobody can convince me that all costs have been removed from the supply chain,” said Bentz. “This is especially true now, as shippers are dealing with fuel volatility, capacity, and demand fluctuation.”
Stifel Nicolaus analyst David Ross noted in a research report that annual tonnage and volume growth comparisons are tougher and industry growth is minimal, with little evidence of things falling despite the high level of economic uncertainty.
Taking that a step further, Ross explained that retailers are maintaining low inventories and being cautious in the current environment, with no signs of inventory destocking that needs to take place—which he said is good for trucking volume stability.
“Any abatement of current fears should lead to a nice pickup in demand, in our opinion, as there is no housing bubble left to pop, no auto bubble left to pop, fuel prices have been declining (which is a decent tailwind for consumer spending), unemployment is relatively stable, borrowing rates are expected to remain low and the population is growing,” wrote Ross. “That’s why our fear of a recession is less than others.”