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Inward Investment Guides

State of the Logistics Industry 2010: Modal Perspectives

Restocking of depleted inventories has resulted in a rebound in shipments for the first half of 2010, but year-end statistics have yet to be compiled.

Rodney Goulet, Vice President, Supply Chain Strategy and Infrastructure, Colliers International (November 2010)
(page 2 of 4)
Trade's Impact on Industrial Demand
Due to the sudden and large drop in port activity during the recession/ downturn, industrial markets located within regions that service seaports have, on average, recorded losses greater than those of the nation as a whole. During the past two years, vacancy rates climbed at a faster pace in the port markets relative to the overall industrial market.

According to Thomas Galvin with Colliers International Market Research group, there is a clear relationship between port activity and change in industrial demand. A back-of-the-envelope calculation shows that for every 1 percent change in port TEUs, a standard measure of containerized trade, industrial demand changes roughly 0.33 percent. Thus, the 60 percent rise in port activity experienced from 2001 to 2007 led to a 20 percent rise in industrial real estate occupancy in port markets. Likewise, the 15 percent decrease in port activity in recent years saw occupancy decrease by 5 percent in port markets.

State of the Industry
According to the 21st Annual State of Logistics Report: The Great Freight Recession, in total, 2009 logistics costs were about $1.1 trillion - that's a drop of $244 billion (or 18.2 percent) over 2008. This is the greatest yearly decline in the report's 21-year history. During the recession years of 2008-09, total logistics costs dropped more than $300 billion. This year's report was sponsored by Council of Supply Chain Management Professionals (CSCMP) and Penske Logistics and once again authored by Rosalyn Wilson of Delcan Corp.

Logistics costs as a percentage of Gross Domestic Product (GDP) were reported at a mere 7.7 percent - the lowest share of GDP in the last 20 years. In fact, logistics costs had risen by some 50 percent over the five years prior to the start of the Great Recession in 2008. That 7.7 percent can be compared to 9.7 percent of GDP in 2008, and 9.9 percent of GDP in 2007.

Nonetheless, since Ideal X's inaugural voyage on April 26, 1956, globalization has taken a stronghold on the world economy and continues to impact the supply chain and industrial real estate industries. As we enter into a period of recovery from the Great Recession, it is still uncertain if North American markets will experience the same levels of explosive growth in industrial development we have seen over the past two decades or if it will be a steady growth spurred by the "greener" mode of rail and additional intermodal developments.

Modal Perspectives
Maritime and Containerized Cargo - Ben Hackett, Principal and Founder of Hackett Associates
The economic recovery still appears to be fragile, with recent volume downturns signaling that the shipping season peaked earlier than normal as the rush to restock inventories earlier in the year intersected with a combination of increased shipping capacity, a Consumer Confidence Index at levels not seen since August 2009, and the slowing growth of consumer spending after three months of level growth. The economic fundamentals are not encouraging, with import numbers in the third quarter increasing at a much slower pace than was seen in the second quarter.

There are positive signs emerging: the Commerce Department reported that wholesale inventories rose 1.3 percent in July, the best performance since July 2008. Sales at the wholesale level increased 0.6 percent, the best showing since April. Commerce also reported that consumer spending rose by 0.4 percent in August, faster than economists had forecast and the second consecutive month of growth. But consumer confidence continues to fall, evidenced by the ratio of inventories to sales as stocks are increasing.

The combination of East Coast and West Coast ports reported on by Hackett Associates Global Port Tracker are forecast to import a total of 16.2 million TEUs in 2010, a 16.7 percent increase from 2009's 13.9 million TEUs. A total of 7.6 million TEUs were imported by the combined East Coast and West Coast ports through the first two quarters of 2010, a 2.4 percent increase over the 7.4 million TEUs imported in the first half of 2009. The import volume handled by the combined coasts increased by 11.6 percent in the third quarter over the second quarter, to 4.59 million TEUs.
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