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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.



Will 2014 Be a Tipping Point for Logistics?

The Atlanta Fed’s Trade and Transportation Advisory Council convened in early April in Jacksonville, Florida. Overall, the tone was encouraging compared with last year’s September meeting, when members reported decelerating activity during the summer. This time, a majority reported expanding activity during the fourth quarter and into 2014, despite the impact of unseasonably harsh winter weather. Additionally, the expectation for demand over the short term is for continued growth at a slightly higher pace.

District port contacts were upbeat, citing a rise in energy exports, steel imports, and higher container volumes. Trucking companies reported very strong freight volumes, which appears to them as real demand and not just a rebound from severe winter weather. It is important to note that the industry continues to operate with about 20 percent less capacity than prerecession levels, and capacity constraints are beginning to limit the movement of goods on highways.

Similar to past years, the railroad industry continues to see modest gains in intermodal traffic and shipments of grain and industrial equipment. Construction products were down slightly, along with significant declines in export coal. In air cargo, revenues are reportedly back to 2007 levels, albeit with only slightly higher air freight volumes boosted by international activity and sharp declines in domestic cargo.

Employment and pricing
Council members indicated employment levels remained stable, with no anticipated increase in staffing levels over the short term. In trucking, struggles to find drivers continue, and regulations have eliminated between 2 percent and 4 percent of drivers and have also reduced the number of hours and miles allowed for drivers. Hiring diesel mechanics has also become a challenge.

Besides the trucking industry, which has steadily been increasing driver pay, council members generally reported no significant upward pressure on labor costs, outside of cost increases for health insurance. As a result of capacity constraints, however, trucking companies project carrier rate increases of between 4 percent and 6 percent, on average, in both the near and longer term as supply and demand dictate. These capacity constraints are creating opportunities for rail carriers, who are seeing more pricing power as well.

International trade
In terms of growth rates of the value of air cargo, regions that should drive demand for U.S. exports include the Middle East, driven by Gulf countries, the United Arab Emirates, Saudi Arabia, and Israel; Asia (specifically China, Hong Kong, and Singapore); Europe, concentrated in areas in Western and Eastern Europe recovering from or not affected by euro zone issues; and Latin America and the Caribbean (and mostly Brazil). Air trade activity should remain flat.

District ports expect cargo volumes in 2014 to grow by up to 5 percent with strong increases in imports while exports will grow more slowly. Asia will remain a primary market for food exports from the United States, and some regions of Africa (chiefly in the western and southern areas) will be target markets for U.S. exporters as the demand for oil, gas, and food products increases.

Geopolitical concerns present potential downside risks for trade flows, and labor issues at West Coast ports could interrupt trans-Pacific trade. Congested and outdated highways, combined with a shortage of truckers, will eventually hamper the inland movement of goods. For example, the lack of funding for dredging or for antiquated lock systems at District inland ports and seaports could stunt growth.

In the near future
Overall, our Trade and Transportation Advisory Council members were upbeat and see two related tipping points approaching. First, prices are on the verge of increasing more rapidly as businesses are forced to pay more as freight charges, especially for trucking and rail, increase. Second, capacity constraints might suppress growth as demand-side bottlenecks in the movement of goods become more frequent.

By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch

May 1, 2014 in Economic conditions, Employment, Exports, International, Logistics, Shipping, Southeast, Trade, Transportation | Permalink


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Logistics in the Southeast, part 2: Supply chain challenges and opportunities

Back in February, I blogged here about a conference, "Freight in the Southeast—Moving Our Region's Business." It is increasingly obvious that the movement of goods both in the Sixth District and throughout the county is critical to commerce and the strength of the economy. Given the challenges we face domestically as a result of the Mississippi River flooding, and internationally as a result of the disaster in Japan, the timing seems right to circle back to the topic of logistics.

Earlier in the year, the Retail Industry Leaders Association (RILA) held its annual logistics conference, which it bills as "the largest single gathering of supply chain decision makers from retail and consumer product companies." Input and feedback from conference participants supplement information the Atlanta Fed receives from members of its trade and transportation advisory council, which is composed of industry leaders and experts from throughout the Sixth District.

Takeaways from the conference are too numerous to list, but a few stand out:

  • The nation's top retailers are rethinking their customer sales and delivery models. While Internet purchases are increasing as a share of total sales, retailers recognize that the way online sales are made is also in transition—from the desktop to mobile devices.
  • Growth in online sales is expected to be five times that of traditional, in-store sales and could amount to 15 percent of total sales by the end of the decade.
  • Sellers that rely on "old-school" approaches will miss out on a rapidly growing slice of the consumer pie.

The most successful retailers of tomorrow will be those who recognize the need for a multi-channel strategy (stores, catalogs, and the Web with purchases being made in person, over the phone, online via desktop, smart phone, tablet, etc.). This transition creates both challenges and opportunities. The number one challenge is the alteration of the supply chain: logistics providers become responsible for delivery of the goods ordered and may well be the only face-to-face contact the customer has with the "store." Outsourced providers of such services and the quality of their work can make or break the perception that the customer has of the shopping experience.

Shortly following the conference, I had a personal experience that made me circle back to some of what I had learned at the RILA conference. My wife and I ordered a new headboard (online) from a national merchandiser that features furniture and other housewares. The item was received damaged and because the delivery had been outsourced, requiring extensive communication with the seller's customer relations team. Ideally, this would have been resolved with the delivery folks acting as representatives for the retailer. In our situation, the ideal was not achieved—we still await replacement of the damaged item and, of course, the seller will be out the cost of the replacement and shipping. Perhaps this is an example of one of those supply chain opportunities—the creation of a seamless customer experience. Regardless of where the purchase is made (in store, via catalog, over the Internet, etc.) and how the purchase is delivered (picked up, delivered by store personnel, delivered by a third party, etc.), the future belongs to those retailers who recognize the criticality of the supply chain and incorporate the responsibility into their marketing department. The message was clear to me: the transaction doesn't conclude once the sale is made, but rather once the customer has taken final delivery of the purchase and is fully satisfied.

Opportunities exist for third-party logistics providers. As the conference emphasized, being able to contribute to an exemplary customer experience will place top service providers in a competitively advantageous position. As consumers change buying approaches and delivery expectations, successful partnerships between retailers and those transporting and delivering purchases will become critical.

By Chris Oakley, vice president at the Atlanta Fed and Jacksonville Branch regional executive

May 19, 2011 in Logistics, Retail, Transportation | Permalink


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