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Murphy Presentation W Dollars  Finnish Logistics Conf 2009 Rx2
 

Murphy Presentation W Dollars Finnish Logistics Conf 2009 Rx2

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Presentation discussing major logistics / distribution / trucking / warehousing trends in the United States, including import and domestic network changes, current state of industry, and some ...

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.

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    Murphy Presentation W Dollars  Finnish Logistics Conf 2009 Rx2 Murphy Presentation W Dollars Finnish Logistics Conf 2009 Rx2 Document Transcript

    • Strategic Trends Impacting Logistics in the United States Logistics Seminar 2009 The Finnish Association of Purchasing and Logistics (LOGY) Establish United Logistics Group February 5, 2009; Helsinki, Finland -------------- Richard Murphy Jr. President & CEO Murphy Companies & Immediate Past Chair Council of Supply Chain Management Professionals (CSCMP) NOTE: Steady Rise Since 2003! 10.5% 15%ase re 10.0% Inc 9.5% Perspective…. 9.0% U.S. Logistics System Cost 8.5% 8.0% 2003-2006: Truck Driver Shortage 7.5% Impacts 2000 2001 2002 2003 2004 2005 2006 2007 2006-2008: Fuel Price Increase and Rail Capacity Impacts Logistics Cost as % of GDP 10.1% of GDP Source: CSCMP State of Logistics 2008 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1
    • U.S. Logistics System Cost $ Billions Carrying Costs Interest 103 Taxes, Obsolescence, 7.95% of Total & Deprec., Insurance 273 U.S Logistics Costs. Warehousing 111 Up 9.9% from 2006. 487 Transportation Motor Carriers Truck - Intercity 455 48% of Total Truck - Local 216 U.S Logistics Costs. 671 Other Carriers Up 5.9% from 2006. Railroads 58 Water 38 Oil Pipeline 10 Air 41 Forwarders 30 177 (CSCMP 2008) 8 Shipper Related Costs 54 Logistics Administration 62 10.1% of GDP. Total Logistics Cost 1397 Up 7% from 2006. U.S. Logistics System Cost (in €) € Billions Carrying Costs Interest 78 Taxes, Obsolescence, 7.95% of Total & Deprec., Insurance 206 U.S Logistics Costs. Warehousing 84 Up 9.9% from 2006. 368 Transportation Motor Carriers Truck - Intercity 344 48% of Total Truck - Local 163 U.S Logistics Costs. 507 Other Carriers Up 5.9% from 2006. Railroads 44 Water 29 Oil Pipeline 7 Air 31 Forwarders 23 134 (CSCMP 2008) 6 Shipper Related Costs 18 Logistics Administration 24 10.1% of GDP. Total Logistics Cost 1033 Up 7% from 2006. 2
    • ▪ 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 $ Billions $ per U.S. Person 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 (CSCMP 2008) 177 $ 590 8 $ 27 Shipper Related Costs 24 $ 80 Logistics Administration 32 $ 107 Total Logistics Cost 1367 $ 4,557 3
    • U.S. Logistics System Cost (in €) € Billions € per U.S. Person 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 6 $ 20 Shipper Related Costs (CSCMP 2008) 18 $ 60 Logistics Administration 24 $ 80 Total Logistics Cost 1033 $ 3,443 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) 4
    • ▪ 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 a warehouse for every man, women and child in the U.S…..all 300,000,000 of us…!!! 4.1 Feet 4.1 Feet 5
    • ▪ Why Discuss Warehousing…. • 5 Billion Sq.Ft of warehousing in U.S. (ProLogis) Floor area equals a 4 foot walkway from here to the Moon…!!! U.S. Economy….. ….During Current Recession All transportation modes dropping capacity FAST…!!! 6
    • Trucking Industry….. Cumulative decrease in loads from June 2008 to December 2008 Trucking Industry….. ….Capacity Reductions…. Carrier bankruptcies growing Source: Wall Street Journal 12/11/2008 7
    • 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. 8
    • Trucking Industry….. ….Capacity Reductions…. Truck driver shortage - still a major factor; current recession merely a lull in the storm Driver Turnover Trucking Industry….. ….Capacity Reductions…. Truck driver shortage – Today’s drivers older then average worker and retiring fast…!!! New drivers must be age 25 by insurance reg’s. Rail industry has same issue of engine driver retirements & shortage 9
    • Rail Industry…. ….Trucking is not Alone…. Container & Rail Car Traffic Down…. BNSF Railroad ….But Investment in Infrastructure Up… UP Railroad Outsourced Warehouse / 3PL Industry…. • 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) 10
    • Trends Influencing U.S. Logistics 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. 11
    • Trends Influencing U.S. Logistics Source: US Dept of Commerce, Bureau of Economic Analysis & Source: U.S. Department of Commerce, Census Bureau CSCMP State of Logistics 2007. 4 Trends Influencing U.S. Logistics What’s Happened to the Order Profile…??? “Old 80:20 Rule” 12
    • Trends Influencing U.S. Logistics North America “Mega-Regions” – Network analysis further impacted by these growing regions Rotman School of Management, University of Toronto Trends Influencing U.S. Logistics Continued Impact of Eastern U.S….. Source: The Tioga Group 13
    • Highway System.... ….Congestion Impacts 2020 2035 Source: U.S. Department of Transportation, Federal Highway Administration, Office of Freight Management and Operations, Freight Analysis Framework. Trends Influencing U.S. Logistics 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 14
    • Trends Influencing U.S. Logistics COFC- “Container-on- Flat-Car” Intermodal • Growing to offset rising diesel TOFC- “Trailer-on-Flat-Car” prices and congested or “Piggy-back” 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 • 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 15
    • Trends Influencing U.S. Logistics Rail Box Car Influences • 1 Box-car handles 3-4 truck loads! • Since the 1970s most new warehouses have not been built with rail siding!  Select Public/Contract/3PL Warehouse Companies are now one 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 handles over 10,000 rail cars / yr. • Rails Served w Facilities: BNSF, CN, CP, UP & MN Commercial Murphy’s Northtown Logistics Campus 16
    • Billions of Tons 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 Source: Bureau of 2002 Q1 Transportation Statistics 2002 Q2 (billions) 2002 Q3 2002 Q4 2003 Q1 2003 Q2 Revenue ton-miles 2003 Q3 2003 Q4 2004 Q1 2004 Q2 m ph 2004 Q3 2004 Q4 20.0 21.0 22.0 23.0 24.0 25.0 26.0 2005 Q1 2005 Q2 1999 Q3 2005 Q3 1999 Q4 2005 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 • Growing Volume – Slower Trains 2004 Q2 2004 Q3 Rail Influences U.S. Logistics 2004 Q4 Railroad Average line-haul speed (mph) 2005 Q1 • Rail congestion impact Rail Congestion 2005 Q2 U.S. Logistics 2005 Q3 Trends Influencing…. 2005 Q4 Trends Influencing…. 17
    • Trends Influencing U.S. Logistics 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 centers out further, thus increasing transportation costs and congestion. Trend especially evident in Chicago, New Jersey, California, Dallas. Where To Find Warehouses Today…???  Growth of Large Logistics Parks & Corridors  Regional Economic Development Drivers.  Big DC Campuses can’t be close to big cities, but they also can’t be too far out…!!! 18
    • Trends Influencing U.S. Logistics 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…. Diesel Prices: 1994-2008 $5.00 $4.50 Price Per G allion $4.00 $3.50 ($/Gallon) $3.00 $2.50 $2.00 $1.50 $1.00 J un-94 J un-95 J un-96 J un-97 J un-98 J un-99 J un-00 J un-01 J un-02 J un-03 J un-04 J un-05 J un-06 J un-07 J un-08 Source: Department of Energy 19
    • Trends Influencing U.S. Logistics “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’Neal President O&S Trucking Why are Jim’s statements important…??? U.S. Commercial Freight Activity By % Sources: Cureau of Transportation Statistics Freight Transportation & U.S. Freight Transportation Forecast to…2016 80% 1993 Modal Shares 70% 1997 60% 2002 In Domestic Tonnage 50% 2004 40% 2016 30% 20% 10% 0% Truck Rail Pipeline Water Multimodal Air 80% 70% 69% Trucking Capacity Issue Will Plague 70% the Economy for Years! 60% 2005 50% 2017 40% 30% 20% 15% 15% 10% 9% 7% 7% 10% 2% 1% 0% 0% 0% Truck Rail Pipeline Water Rail Air Intermodal Source: U.S. Freight Transportation Forecast to…2017 20
    • Trends Influencing U.S. Logistics Trends Influencing U.S. Logistics Network Cost + Carbon Footprint Reduction…. Source: MIT 10-2008 21
    • Trends Influencing U.S. Logistics Network Cost + Carbon Footprint Reduction…. Source of last 3 slides: MIT Trends Influencing U.S. Logistics Consolidation…. ….Old Concept – Renewed Interest • Growing interest by “individual” shippers to: • Consolidate multiple orders to a region. • Wait till enough product ordered to ship full loads. • Utilize cross-dock operations to deliver locally. • Growing interest by “groups” of shippers: • Consolidate orders together to build full loads for direct TL shipment or to a cross-dock facility. 22
    • Trends Influencing U.S. Logistics More Warehouses (vs. Fewer)..??? • Additional forces at work….  Fuel price impacts – order size, frequency of replenishment, etc.  Growth of Lean Manufacturing and JIT plant support. Consumer trend toward “we want it now!.” SKU Proliferation… Trends Influencing U.S. Logistics More Warehouses (vs. Fewer)…??? • Trade-off of…. Higher inventory costs, lower carbon footprint, more warehouse locations, etc. vs. Rising transportation costs, capacity constraints, security, etc. The economics are shifting…!!! 23
    • Trends Influencing U.S. Logistics 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 are looking at becoming a 6-10 network of warehouses. Existing New DC New Cross- Dock Global Supply Chains….Impacts on U.S. U.S. Import Network Source: The Tioga Group 24
    • Global Supply Chains….Impacts on U.S. Implications of offshore sourcing / manufacturing: • Less manufacturing space needed in USA • More DC / warehouse space needed in USA  Distance adds time and more safety stock requirements Resulting in changing distribution 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’s import focused product flows.  Large shippers like Wal-Mart are also beginning to affect warehouse locations in order to feed their huge complexes. 25
    • 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 by intermodal): $2000.00 - $1.14 / Mile Panama Canal • Land cost portion is pushing many to consider ocean voyages through the Panama Canal for better access to east coast and gulf ports. • In 2008 – 25% of U.S. imports flowed through the Panama Canal. • 2014 - Panama Canal should be wide enough 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 26
    • Global Supply Chains….Impacts on U.S. “Northwest Passage”…. • People are starting to talk about the feasibility in 10 years of the “Northwest Passage” being open for container ships. • Caused by warm arctic waters melting the ice. • Will create a potentially shorter route to east coast and St. Laurence Seaway ports. “Northwest Passage”…. …. + “Northeast Passage” for Europe? Source: The Economist, Jan. 3, 2009 Issue, p7 of Special Report on the Sea. 27
    • 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  Global Supply Chains….Impacts on U.S. Port Congestion and High Fuel Price Impacts…. – ….Creation of Import Warehouses Locations: Up to 100 miles from ocean ports with services generally provided by 3PL’s. • Resulting from: • land shortages near seaports • Transportation efficiencies delivered by maturing intermodal and rail industries. • Activities include transloading, repack and labeling. • Example: 6 - 40’ containers = 4 - 53’ trailers 28
    • Global Supply Chains….Impacts on U.S. 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 in transload 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 local barge and unloading of regional ship for further distribution. 29
    • Global Supply Chains….Impacts on U.S. “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. 30
    • Global Supply Chains….Impacts on U.S. Imports…. Impacts of Fuel Cost Can long supply chains still be cost effective? Source: WSJ, 6-13-2008, page A1 Global Supply Chains….Impacts on U.S. ”Near Sourcing”…. • Factors influencing re-evaluation of offshore manufacturing:  Energy costs – esp. in logistics / transportation  Complexity of supply chains and visibility issue  Long lead times  Excess inventory required  Larger carbon footprints – “Green” movement impact  Product Quality Controls  Available labor pools in select countries  Impact in China from growing internal consumer market (vs. export market) 31
    • Global Supply Chains….Impacts on U.S. 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…. Source: MIT 10-2008 32
    • Global Supply Chains….Impacts on U.S. Network evaluation – Case Studies…. Global Supply Chains….Impacts on U.S. Network evaluation – Case Study…. Source: MIT 10-2008 33
    • Global Supply Chains….Impacts on U.S. “Made in America…..Once Again” • DC Velocity Viewpoints web letter February 28 2008 Mitch MacDonald, Group Editorial Director. • Corporations are abandoning their myopic focus on hourly 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 Green Trends Influencing U.S. Logistics “Eco” • ….Eco-nomics • ….Eco-logy Many investors see “green” practices as a reflection of good management practices. Wall Street Impact on Green 34
    • Green Trends Influencing U.S. Logistics 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 no problem…delivery ASAP! • Green Focus: …increasing order minimums to reduce delivery frequency, and longer order lead times to facilitate transportation consolidation. 35
    • Green Trends Influencing U.S. Logistics Energy Creation Measures • Wind power units – rooftop units (individual fans or horizontal row of blades at roof edge to capture air flow rising up and over building, & stand alone tower units. Whole Foods Store, CA Green Trends Influencing…. ….U.S. Logistics Solar Power Stations Large available flat areas - “just sit there” - Solar panels not a great load factor • Commercial solutions include:  “Solar Energy Service Provider” who provides 100% responsibility to design, build, own and operate the asset - including all upfront purchase and installation costs.  …..to solutions where building owner owns the solar assets. Staples Store 2 Solar Providers: 36
    • Trends Influencing…. ….U.S. Logistics Need to keep in mind the inland waterways as a transportation option. Trends Influencing U.S. Logistics Economic Comparison…. 37
    • Trends Influencing U.S. Logistics ▪ 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 growing due to fuel prices. • Supply Chain Managers – still searching for balance of efficiency & customer service. • Visibility – growing need as Supply Chains have become more complex and long. Transportation / Logistics providers will have to meet requirements. • Mode Integration Growing – more and more interface between 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 and globally. • Supply Chain Network Design • Growing interest in more DC and Crossdock locations. • Likely to see 6-10 DC/Warehouse networks (vs. 3-5 which was common 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 at beginning & end of movements. • Railroads are making a comeback – and will play a greater role in the future. 38
    • Trends Influencing U.S. Logistics ▪ 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 key inland 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 popularity amongst shippers. Strategic Trends Impacting Logistics in the United States Logistics Seminar 2009 The Finnish Association of Purchasing and Logistics (LOGY) Establish United Logistics Group February 5, 2009; Helsinki, Finland -------------- Richard Murphy Jr. President & CEO Murphy Companies & Immediate Past Chair Council of Supply Chain Management Professionals (CSCMP) 39