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LOGISTICS: Logistics Capacity Constraints in the Wake Of the Recession

 





Recent Gauteng Business News

Logistics capacity constraints in the United States (US), one indicator of the pace of economic recovery continue to point to the prolonged aftermath of the Recession. At the same time, such constraints pressurise logistics and supply chain management businesses globally as the Western World continues to struggle with sovereign debt and markets fear a second recession.

According to Roslyn Wilson, author of the CSCMP’s 22nd Annual State of Logistics Report®, “The recession had a devastating effect on total industry capacity, which is much lower than it was in 2007. The recovery is not being felt evenly throughout the economy and 2010 did little to shore up precarious carriers who have been hanging on hoping to be rescued by a resurgence in the economy.”

Logistics Capacity Constraints with Common Capacity Focus


“In this challenging climate, tight management of fleet capacity has been a common focus for carriers in the USA,” said Abrie de Swardt, IMPERIAL Logistics Marketing Director. In its Q2 earnings statement, US carrier Werner stated that capacity in the industry “remains constrained by both economic and safety/regulatory factors. From 2007 to 2010, the number of new trucks purchased was well below historical replacement levels.”

Validating this perspective, the Annual State of Logistics Report® ascertained that “total industry capacity has suffered during the economic downturn, with more than 16% of truck capacity permanently removed since 2006.” It stated that volumes have only recovered about half the recession losses, yet industry capacity, particularly in truck and air, is close to being fully engaged.

“Donald Broughton of Avondale Partners estimate that more than 3 000 trucking firms have declared bankruptcy in the past three years, a loss of 13% of industry capacity. The report notes that this included only carriers with at least five trucks, so the number is actually much higher,” he said.

People Capacity Priority Due to Logistics Capacity Constraints


“Carriers are also finding it tough not only to retain drivers, but to source new drivers,” added de Swardt. The report finds that the trucking sector has experienced the largest decrease in employees in the industry, with a loss of 13.4% of the workforce over the last four years.

“Of concern to US market stability, it finds that 16 percent of US truck drivers are over the age of 55 and less than one quarter are under the age of 35. These demographics do not bode well for a sustainable US logistics sector,” he said.

Locally, he added, “skills shortages continue to be a critical ‘make or break’ factor for the competitiveness level of our logistics offering. Just as drivers are a very valuable resource within the US context, so they are within South Africa.” De Swardt refers to driver training undertaken recently for 37 IMPERIAL Logistics drivers that has resulted in more sustainable, cost effective driver behavior.

Modules completed by drivers included a three-day intensive Mercedes-Benz Advanced Driver Training, SETA Accredited Assessor Training, and Effective Use of MB Vehicles and FleetBoard Analysis. “On-going training is also undertaken at operating company level, with member companies Tanker Services and Freightmax being accredited with the Transport SETA for driver training and registered with the Department of Transport for Dangerous Goods training,” he said.

US market commentary

The ailing state of the US economy was commented on by Wilson. On publishing the report in June 2011, she noted that it appears that the economy is stalling, stating: “It has been close to two years since the recession was pronounced over but for many Americans, things have not improved.”

Her view of the US economic prospects was spot on in light of national debt reaching 100 percent of Gross Domestic Product (GDP) in August 2011: “The economy has been in a fragile state for close to four years now and the highly touted recovery in some sectors has not generated enough momentum to cascade into other less robust sectors. … I have watched this situation developing over the last two months and have concluded that we may have hit a wall.”

“With US debt levels having topped the annual economy size last seen in World War II, logistics capacity constraints will have to be overcome rapidly and effectively in order to spur on economic recovery. With South Africa’s markets being swayed significantly by a healthy or paling US economy, it is imperative that we manage and invest in our capacity, both assets and people wisely across all modes of transport,” concluded de Swardt.



 
 
 
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