Entrepreneur’s Corner

According to recent industry reports, domestic transportation carriers have over 10% EXCESS capacity!

This means this is the best market for buyers since deregulation. If you pay to move any freight, NOW is the time to put it out for bid. Carriers are willing to sign long term deals that were unheard of prior to the summer of 2008.

Now is the time to act. There are a few things you can count on. First, this market will turn as carriers go out of business or are acquired. Second, fuel prices will increase. Third, as carriers renegotiate contracts they will be forced to raise the bar. Each carrier will only be willing to make so many “NO margin deals.”

You should renegotiate all your pricing, including fuel surcharges and lock them in for three years to five years. This term length was not possible until this year. You won’t see a transportation market like this probably ever again.

Carriers are feeling the heat and ready to deal. The end of the year is coming and now is the time to make what could be the best deal for transportation you will ever make.

The surveys discussed below mark a continuation of a series of annual surveys of the CEOs of major 3PL service providers that began in 1994. During 2009, three separate surveys were conducted—one of the CEOs of large companies serving the North American 3PL marketplace, another of those serving the European market, and a third of companies serving the Asia-Pacific 3PL marketplace. Thirty-five CEOs were involved in the surveys, and collectively their companies generated in excess of $64 billion in 3PL revenues in those three markets during 2008.

Sixteen of the 35 companies failed to meet their revenue growth projections during 2008.

Nevertheless, 33 CEOs reported their companies were at least moderately profitable during 2008, with only one reporting his company was unprofitable.

However, the global recession has clearly influenced the revenue growth projections provided by the CEOs for not only their companies, but also the regional 3PL industries for the next three years. Their projections have become much more modest.

From a company standpoint, the one-year revenue growth projections were 6.9% for North America (12.6% in 2008), -3.3% for Europe (10.8% in 2008) and 12.9% for APAC (21.4% in 2008).

The average three-year company growth projections were 11.8% for North America (13.4% in 2008), 8.7% for Europe (10.0% in 2008) and 16.7% for APAC (23.1% in 2008).

Twenty-eight of the 35 CEOs reported layoffs of some employees during the past year. For the companies reporting layoffs, the percentage of the workforce that was laid off during the year averaged 13% in North America, 12% in Europe and 9% in the Asia-Pacific region. Many of the CEOs also reported the institution of hiring freezes by their companies. Twenty-seven CEOs reported that their companies had reduced recruiting efforts during the year. Interestingly, only six CEOs reported cuts in training programs. Twenty-six reported a reduction in executive trips to industry conferences.

Not surprisingly, 33 CEOs indicated that the economic downturn had intensified price compression issues within the industry. That had been a long-standing problem in the industry before the global recession began.

The impact of the global recession on business relationships in the three regions was also addressed in the surveys. Not surprisingly, in all three regions the CEOs reported about one-quarter of their business relationships with their clients had become more adversarial as a result of the recession. However, in some cases that was at least partially offset by the emergence of more collaborative relationships with other customers. North American CEOs reported more collaborative relationships with more than one-third of their customers; European CEOs reported the same development with approximately 20 percent of their customers; and APAC CEOs reported more collaborative relationships with approximately 13% of their clients.

Many customers of the 3PLs involved in this survey took steps during the past year to shorten their supply chains. The CEOs surveyed in North America and Europe reported that, on average, nearly one-quarter of their clients had taken such steps during the past year. For the APAC region, the reported average was 9%.

Twenty CEOs reported that some of their major clients had shifted some of their manufacturing activities from Asia to North or Central America or Eastern Europe. The scale of that shift is small at this point, but many of the CEOs expect the trend to grow over the next several years as many companies seek to shorten supply chains.

Despite the global economic downturn, 3PLs continued to pay substantial attention to “green” and environmental sustainability issues. It was established in the 2008 surveys that many of the companies involved in the surveys had formal sustainability programs, formal sustainability statements, leaders designated to head company efforts in the area, and had made major changes in the operations to pursue “green” goals. Interestingly, 25 of the 35 companies involved in this year’s surveys reported that their companies had launched new sustainability initiatives during the year, 22 had expanded existing sustainability programs, and none reported scaling back any of their existing sustainability programs.

Only nine of the 35 companies were involved in significant merger/acquisitions during 2008. While many of the CEOs believe that industry consolidation will continue in their regions, on average the CEOs in all three regions expect less than 9% of their revenue growth to come from acquisitions over the next three years.

Only three of the 35 CEOs indicated that their companies had expanded the scope of their “branding” efforts during the past year. Twenty others reported that their branding activity remained at approximately the same level as the previous year, and 12 said that their level of branding activity had decreased from the previous year. Such branding efforts have often been used by these companies to offset the perceived “commoditization” of the 3PL industry.

The CEOs identified the global recession and pricing pressures as the two most important industry dynamics in all three regions.

The most important opportunities identified by the CEOs varied by region. In North America, the CEOs focused on growth opportunities related not only to a possible influx of new users, but also to the potential ability to take clients from smaller providers, possible talent upgrades tied to layoffs among other 3PLs and customers, and opportunities to build more collaborative relationships with their clients. The opportunities identified by European CEOs included the possible growth of outsourcing and their ability to gain market share, opportunities related to Eastern Europe and growth related to the possible expansion of their service offerings. The CEOs involved in the APAC survey highlighted opportunities involving domestic growth in China, expansion of logistics outsourcing volume in the region and opportunities in India.

Those surveyed were also asked to identify the most important problems facing their companies. The problems identified in North America included the recession and its related impact on volume, price compression, and the loss of talent tied to layoffs and hiring freezes. The European CEOs focused on problems related to volume fluctuations, price compression and the financial instability of some important customers. The problems identified by the CEOs in the APAC survey included an ongoing lack of management talent in the region, the region’s “weak” infrastructure, cost pressures, and problems with government bureaucracy and corruption.

Finally, the CEOs were asked what they believed would be the most important changes that would occur in the 3PL industry in their region over the next three years. The North American CEOs forecast a slow recovery, continued consolidation in the 3PL industry, some 3PL failures and a continuation of the movement toward “reverse globalization.” The European CEOs also expect a slow recovery, business failures among both the 3PL and the 3PL service user communities, and continued consolidation of the 3PL industry in the region. The APAC CEOs also expect continued 3PL consolidation in the region and strong intra-Asian growth.

According to an article appearing Workforce.com, employers are getting hit with lawsuits related to criminal background checks and credit checks. As always, consistency and common sense will keep you out of trouble but the trend is clear. See exerpts from the article by Fay Hansen below:

Explosive growth in the background screening industry during the past decade has generated near-universal adoption of criminal checks and a steady rise in credit checks for all U.S. job candidates.

…this growing reliance on screening is on a collision course with new legislative restrictions, legal challenges and mounting evidence that such results are poor predictors of behavior and performance.

…The EEOC says these exclusionary practices are not job-related or justified by business necessity.

…A spate of EEOC and private lawsuits are pending against other companies for unlawfully denying employment to people with criminal records or bad credit histories.

…EEOC hearings on screening practices in November 2008 included expert testimony that the results are not good predictors of employee behavior or performance. In addition to greater EEOC scrutiny of criminal record screening practices, a growing number of states now prohibit or limit pre-employment arrest inquiries.

One in five U.S. adults now have a criminal record that would show up on a routine pre-employment background check, according to estimates based on Bureau of Justice data.

…HireRight’s 2009 survey results confirm this, with 93 percent of employers reporting that they run criminality checks, up from 85 percent in 2008.

…HireRight surveyed 1,411 employers of all sizes from more than 15 industries. The survey found that 84 percent of employers conduct comprehensive screening before the first day of work; 8 percent screen immediately after the start.

…The HireRight survey found that 42 percent of employers check credit histories, up from 36 percent in 2008, but legislators are increasingly challenging the use of credit checks in pre-employment screening.

Congress is considering a bill that would prevent employers from using credit reports in their hiring or promotion decisions. In June, Hawaii joined Washington state in limiting the use of credit checks in pre-employment screening; bans or restrictions also are under consideration in Michigan, Ohio, Connecticut, Missouri, New York and Texas.

…What is clear is a growing legislative and regulatory backlash against screening practices that are not tied to demonstrable risk and business necessity.

Follow this link to the complete article.

While Washington seems concerned only with “health care reform”, Obama continues to do for the economy what he did for world peace, and unemployment is still too high, there is some good news.

The market is over 10,000 and Apple showed that if you make products that people want to buy, they will. In addition, PNC Business Banking sent out the following which is encouraging:

The Great Recession of 2008 to mid-2009 appeared to end in the summer quarter. The third quarter’s real GDP growth rate was close to 3% annualized, thus putting an end to the longest U.S. recession since the Great Depression. Third quarter GDP was supported by an end to the huge inventory drawdown of the past three quarters, the resumption of the new “normal” production at GM and Chrysler, consumer spending on automobiles motivated by the Cash-for-Clunkers program, and increasing government spending as more fiscal stimulus dollars were engaged.

After pessimism of small and mid-sized business owners rose last Spring to an all-time high in the history of the PNC Economic Outlook survey, owners are now more cautiously optimistic, still waiting for a boost from the federal stimulus program. The new Fall findings support PNC’s forecast that the U.S. economy has started a moderate U-shaped recovery in the latter half of this year that will continue throughout at least 2010. The PNC survey, which began in 2003, gauges the mood and sentiment among small and mid-sized business owners, who represent the bedrock of the American economy.

Now, if Obama and gang can keep from killing us with regulations and taxes (direct or indirect), and focus on job creation, 2010 might be a pretty decent year. As John Lennon would say “Come on Mr. President, give growth a chance.”

The Sustainable Supply Chain Management Podcast is hosted by Dr. Dale Rogers and Curtis Greve. This podcast is focused on sustainable supply chain management issues and best practices.

Podcast #4 – Asset Recovery

Join Curtis Greve and Dr. Dale Rogers as they discuss basics of Asset Recovery in their fourth podcast. Whether you call it Asset Recovery, Liquidation, or Salvage Sales, it is an opportunity to increased profits for manufacturer and retailers alike.

Successful manufacturers such as Nike, Dell, HP, Adidas, Foxconn, and leading retailers such as Walmart, Kohl’s, Canadian Tire and Target successfully integrated a Strategic Asset Recovery Strategy into their Sustainable Supply Chain Management Strategy. This approach enables these companies to maximize the value of obsolete inventory while removing slow moving or dead inventory from the primary stream of commerce.  A Strategic Asset Recovery Strategy will increase customer satisfaction and increase profits.

The AFL-CIO is holding their national convention in Pittsburgh and the once Republican turned Democrat Senator from Pennsylvania is taking full advantage of his new found left wing support.

The Associated Press reported:

Sen. Arlen Specter tells the AFL-CIO that he will support legislation to make it easier to form unions.

Specter also predicts Congress will pass a compromise version of the bill this year that will be “totally satisfactory to labor.”

His position is a change from earlier this year, when he said the struggling economy made it a bad time to pass the bill.

Since then, Specter has switched from the Republican to the Democratic Party. Specter is facing a strong primary challenge from Pennsylvania Rep. Joe Sestak and is counting on union support to help him hold onto his seat

.

According to the recent McKensey Quarterly, India leads the world in providing offshore services in business and technology, with revenues of $58 billion in 2008, out of a global total of $80 billion. McKinsey estimates this is just the beginning: the global market for offshore business and technology services could grow to about $500 billion by 2020. Yet even with this growth, the industry will still serve less than 1/3 of the potential market for these services, which McKinsey estimates at $1.65 trillion to $1.80 trillion in 2020.

Source: Strengthening India’s Offshore Industry

Growth of domestic outsourcing continues to outpace GDP growth also. Why?

The answer is simple. Outsourcing non-core competencies cost less than developing and/or supporting inefficient, poorly run in-house functions.

The perception of many is that outsourcing costs more but that is usually because they don’t count all the internal costs of sub-par production, and often over look costs of supporting a poor in-house model.

If you do not have thought leading executives with core competencies in support functions such as systems, supply chain management, or call center operations. You should seriously look at outsourcing.

If you don’t have the critical mass for these functions, outsourcing could leverage an expert provider’s base, resulting in significant cost reduction.

If flexibility, dynamic growth, or restricted capital are realities you face, often times, outsourcing is a great strategy that will result in dramatic bottom line improvement.

Because of these and many other reasons, most of the Fortune 1,000 companies outsource / off shore significant pieces of their core functions.

Economic Conditions Snapshot, August 2009: McKinsey Global Survey Results
Executives’ optimism about their nations’ economies and their companies’ prospects continued to grow over the past six weeks, and many companies are focusing more on growth. Yet full recovery, executives say, remains far off.

Cautious focus on growth

Just over half of the respondents to this survey say they expect their companies’ overall financial position at the end of 2009 to have improved from its current state. More executives now feel optimistic about their companies’ 2009 profits now than were so in June, with roughly equal shares currently expecting an increase or a decrease (Exhibit 2).

Although executives at large, public companies and at small, private ones indicate that their organizations have been about equally hard-hit financially by the crisis, executives at the larger companies are much likelier to say their companies have cut jobs.

Another sign of financial improvement is that while the proportion of companies seeking external funding has remained stable, the share getting all the funds they’ve sought has risen to above half—53 percent—from 47 percent in June. The share seeking funds to refinance debt has increased since June, consistent with a slight loosening in credit markets generally.

Executives expect their companies to remain financially cautious over the next 12 months—vast majorities of those that have already cut costs or increased hedging, for instance, will continue to do so. Yet they also indicate some room for growth. More than a third of their companies, for example, plan to stop cutting capital investments over that period.

AUGUST 2009

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