Trends—August 2011

Trends—August 2011

Trucks Will Dominate

Despite hitting a number of speed bumps during the economic recession, trucking is expected to dominate U.S. domestic transportation over the next 10 years, taking market share from the railroads. Overall, U.S. freight tonnage is expected to grow 24 percent by 2022, while revenue for the industry is projected to rise 66 percent, according to the U.S. Freight Transportation Forecast to 2022 report authored by the American Trucking Associations and analysts IHS Global Insight and Martin Labbe Associates.

In 2010, trucking accounted for 67 percent of freight tonnage and 81 percent of industry revenue. By 2022, haulage’s share of the market will rise to 70 percent in terms of tonnage, the report predicts. The industry will struggle to translate this growth into increased revenues, however, with profits increasing only two-tenths of one percent over the next decade.

The one casualty may be the railroad industry. Trucking’s tonnage growth will see the railroad’s overall share of tonnage drop from 15.3 percent to 14.6 percent between 2010 and 2022, according to the report. The intermodal sector is expected to fare well over the short term, however, with tonnage increasing approximately 6.6 percent annually through 2016, then 5.5 percent until 2022. Revenue will almost triple during that same period, jumping from $11 billion to $30 billion.

Best Buy Gets Right-Sized

The cracks are beginning to show at some brick-and-mortar retailers. Increasing competition from e-tailers and wholesale channels, exacerbated by sluggish consumer spending and bargain buying, has forced many big-name companies to consolidate their physical presence. Best Buy is the latest chain to follow the trend.

The Minneapolis-headquartered consumer electronics company, which operates 1,300 stores nationwide, is in the process of consolidating retail operations and sub-leasing floor space to smaller boutique stores. Best Buy is looking to shrink new stores by approximately 10,000 square feet.

“We can reduce our overall square footage while actually increasing our presence,” explains Brian Dunn, the company’s chief executive. “It’s an opportunity to capture cost savings and get ourselves ‘right size.'”

The corporate-wide consolidation effort is partly driven by changes in the types of products that Best Buy is selling. For example, retail demand for CD and DVD media is waning as digital becomes the preferred format for buying music and movies. So the retailer’s footprint is naturally decreasing. Now Best Buy is looking to optimize further with large-scale downsizing efforts.

As another part of its strategy, Best Buy is also scaling storefronts to specific products. The company has announced plans to create Best Buy Mobile stores that specifically cater to cell phones, smartphones, and tablets. The mobile stores, which measure less than 3,000 square feet, ultimately allow Best Buy to direct attention to highly profitable mobile devices.

Cargo Theft Trumps Terrorism

Cargo theft will be the top supply chain risk concern over the next five years, according to more than 200 supply chain security professionals recently polled as part of FreightWatch’s 2011 supply chain survey.

Eighty-one percent of respondents—who comprise all levels of management, from manufacturing, third-party logistics, transportation providers, and insurance companies, among others—identify cargo theft as a major concern for supply chain operations (see chart below). Only 11 percent of respondents list terrorism as a top concern, according to the Austin, Texas-based global logistics security solutions provider.

“The information and data collected are invaluable in fully understanding what keeps supply chain professionals up at night and what is necessary to combat the risks their companies face,” says Barry Conlon, CEO of FreightWatch.

While the rate of cargo theft has grown every year since FreightWatch began collecting data in 2006, specific industries have experienced fluctuations in both theft rates and average loss values. The ability to further understand how industry professionals view cargo theft in relation to other risks is critical in deploying customizable solutions and procedures to mitigate recurring risks.

Trends Theft Graph

Connecting the DOTs

The U.S. transportation and logistics sector relies on state departments of transportation (DOTs) to make sure freight flows freely along roads, rails, and inland waterways. But the high cost of fuel and shrinking transportation budgets across all modes has forced many DOTs to streamline their own operations.

“Many state departments of transportation are turning to technology and environmentally sensitive solutions to cut fuel consumption, improve efficiency, and save money,” says John Horsley, executive director of the American Association of State Highway and Transportation Officials. “State DOTs are facing some of the steepest revenue declines in decades. Without these innovative solutions, the impact on the condition and performance of our roads and bridges would be even greater.”

DOTs in Indiana, Arizona, Kansas, Michigan, and New Hampshire offer the following examples of how they are adapting their operations:

  • The Indiana Department of Transportation (INDOT) is currently converting 527 of its work trucks and vans to run on cleaner-burning domestic propane. The retrofitted vehicles have the same power, acceleration, and fuel economy as gasoline- and diesel-powered counterparts, but propane costs less than half as much per gallon as gasoline. INDOT conservatively estimates replacing 500,000 gallons of unleaded gas with propane over the next year, expecting to save more than $1 million in taxpayer funds.
  • The Arizona Department of Transportation (ADOT) is testing a new solar-powered system to eliminate the need to keep its vehicles idling while parked in traffic. This new technology allows emergency lighting mounted on work trucks to remain illuminated even when the engine is turned off.
  • In separate programs to cut fuel consumption, ADOT, the Kansas Department of Transportation, and the Michigan Department of Transportation are encouraging employees using DOT vehicles to slow down, avoid idling, reduce vehicle loads, and ensure tires are properly inflated.
  • The New Hampshire Department of Transportation is turning to wood-burning technology to supplement its heating systems and reduce the amount of heating oil necessary to keep buildings warm. Initial estimates put annual savings at $200,000; state officials now estimate an additional $100,000 in savings, however, due to the escalating price of home heating oil.

UT Creates SC Think Tank

The Global Supply Chain Institute at the University of Tennessee, Knoxville, has formed an advisory board of senior supply chain executives from 30 companies that will meet quarterly through Web conferences to share ideas and observations about the state of the supply chain.

The executives include vice presidents of supply chain and above, from companies representing office products, online services, technology, transportation, aerospace and defense, apparel, and pharmaceuticals.

The purpose of the advisory board is two-fold:

1. To solicit advice from supply chain leaders on the various programs at UT Knoxville, including the Global Supply Chain Executive MBA and Global Supply Chain Forum.

2. To serve as a connection point for senior supply chain executives to discuss the latest industry trends and benchmark best practices.n

Leave a Reply

Your email address will not be published. Required fields are marked *