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Instant Scalability Key to 3PL Optimization OpportunityProviders Warn: ‘Amateurs beware!’ (7/15/2008) Philadelphia: The need for third party logistics providers is increasing at a frantic pace. How and why is this happening? Everything that logistics encompasses has become a rocky terrain. Amateurs beware! According to a recent State of Logistics report released by the Council of Supply Chain Management Professionals (CSCMP), American businesses spent a record $1.4 trillion on logistics last year. That is equal to 10.1% of the nation’s Gross Domestic Product (GDP). This percentage has not been seen since 2000. “The outlook for the future is pretty grim with inventory carrying costs outpacing transportation costs, rising 9% last year alone, and transportation costs now account for 6.2% of nominal GDP, after rising 5.9% in 2007,” said Tom Torcomian, President and CEO of Leading Edge Logistics (LEL). Torcomian went on to say, “We will probably not see a successful come back to prosperity for sometime. In just the first quarter of this year more than 2,000 trucking companies have closed down operations. There is now less capacity in trucking than there was eight years ago.” “Really the only side of logistics that has the upper hand at the moment are the shippers, who hold the pricing power. These numbers are enough to make anyone run and hide, but unfortunately, that is not exactly an option for most companies,” concluded Torcomian. A Snapshot of the U.S. Logistics Market Interest 103 Taxes, obsolescence, depreciation, insurance 273 Warehousing 111 Source: CSCMP’s 19th Annual State of Logistics Report Let’s first see how the condition of logistics turned into the faulty mess it is today. • The first, second and third reasons for the current logistics’ environment is FUEL, and its ability to continue to rise in price so fast. Between February 29, 2008 and March 12, 2008 oil price records were both set and broken six times in seven trading days. On May 9, 2008, the oil price exceeded $125 per barrel for the first time, while on May 21 the oil price exceeded already $130 per barrel. In approximately 24 hours from May 21 to May 22, 2008 the price per barrel of oil passed $135. On June 6, 2008 prices rose $11 in 24 hours, the largest gain in history. • Another reason is the slowing U.S. economy. Because of the slowdown, freight volumes are lessening leading to the carriers’ inability to raise rates (except for fuel surcharges). The combined higher inventory carrying costs and transport costs exceeds the abating U.S. economy. How is a 3PL provider supposed to help or save a company lost in the rough supply chain sea? Well, first of all they are prepared for the waves. “The possibility of a 3PL provider improving the present state of the economy or lowering the price of fuel is not likely for their customers, but what a 3PL provider can do is at least ease the shock of it,” said Torcomian. A 3PL provider specializes in integrated warehousing and transportation services that can be scaled and customized to a customer’s needs. They take into account what the existing market conditions are, and what demands and delivery service requirements for the products and materials are present. “We will look at the entire picture and find the best way to lower costs and increase efficiency,” concluded Torcomian. About Leading Edge Logistics Leading Edge Logistics is a non-asset based, third party logistics provider that guarantees customer cost reduction by using a proprietary approach, including customized monthly reports, to focus on the root causes that effect logistics costs. LEL operates i2 Supply Chain Software... one of the most powerful logistics tools available. Leading Edge Logistics’ special service philosophy is to work for their customers as opposed to working for their own assets. For More Information on LEL services, go to http://www.leadingedgelogistics.com
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