Logistics Firms Cope with Recession but Expect a Return
January 11, 2010
BY MIKE DUFF
Logistics companies have been hit by the recession but have responded by making do where it was necessary and diversifying where they could — while looking forward to a better day ahead, one that may be on the way.
The consolidation that has hit the industry, as weaker operators folded or scaled operation, holds the promise of that better day, at least for surviving firms that will be in a stronger position as recovery advances.
Logistics providers have faced increasing pressure on rates during the recession as customers pressed to help them lower costs.
Geoff Turner, president and CEO of Choptank Transport, Preston, Md., acknowledges that the company has seen substantial rate compression in the economic downturn. In response, Choptank has been emphasizing value and customer service.
The competition has become more aggressive in pursuing advantages and new customers, Turner says, but so has Choptank. Among its initiatives, Choptank invested in people, increasing the company’s sales staff by 44% this year.
Choptank also spent money on technology to ensure employees are able to access current information quickly and easily across departments, including sales, dispatch, lead generation, warehouse and billing. It initiated programs to control costs even as it invested in efficiencies. The company even joined the U.S. Environmental Protection Agency’s SmartWay Transportation Partnership program, adds Steve Covey, Choptank’s vice president of sales. EPA developed the program to save members money while lowering emissions and other environmental pollutants related to the industry.
The Long-Term
Yet the pressures generated by the recession aren’t likely to abate in the short-term, Ray Tarnowski, president of Philadelphia Warehousing & Cold Storage, says. As the recession hit and business softened, companies that continued contracting services tried to push costs off their own books and onto their service providers, a situation logistics companies still are managing.
While it has a certain number of controllable costs, Philadelphia Warehousing & Cold Storage has a lot of expenses that aren’t readily adjusted, and what little labor savings it experiences in slower periods doesn’t compensate for slack sales.
“Our bottom line is that our fixed costs are fixed,” Tarnowski says. “You just have to monitor expenses more keenly.”
For example, the Philadelphia-based company is weighing capital expenses against the business going through its various facilities and the profitability of each before making any decisions to invest, Tarnowski says.
Pressured to save money, customers are looking for the kinds of services provided by Locus Traxx, Jupiter, Fla., says John Hennessy, its vice president of marketing. Locus Traxx monitors trucks in their cross-country travels to keep costs down and ensure each trip contributes to the company coffers. A spoiled shipment a trucking firm has to make good is a more difficult to recoup today as logistics companies cope with narrower margins, he says.
“When times are good, you can get away with those a few times,” Hennessy says. “You have a hard time making it up today because making money is not as easy.”
Providing new services is another way logistics companies are coping with the economic downturn. For example, Henningsen Cold Storage Co., Hillsboro, Ore., has taken on a new business with the launch of Henningsen Wine Services, a temperature-controlled, bonded and tax-paid wine and ale storage venture.
As the recovery takes hold, fewer logistics companies will remain and fuel costs will rise with economic activity, so rates undoubtedly will increase.
“A lot of smaller transport companies aren’t reordering trucks,” Hennessy says. “They’ve decommissioned trucks and scaled down to the point where, when demand goes up, we aren’t going to be seeing these murderous rates. We’ve seen companies working hard to maintain price and stability, and one way to do it is to lesson supply. People who have wisely done that will reap the benefits.”
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