Contract logistics: Penske exec elaborates on “state of the industry”

Prior to the release of the 21st annual State of Logistics report by the Council of Supply Chain Management Professionals (CSCMP) at the National Press Club last week, Penske Logistics gave LM an exclusive interview on some of the details. As the principal sponsor of the report, Penske also had some industry insider intelligence to share on the impact made by the two-year recession first felt in 2007.

Vincent W. Hartnett, Jr., the company’s president, said that last year Penske’s leasing was affected by lower business activity, but has been ramping up since the last quarter of 2009, with fewer reductions in overall service.

"Food and beverages were not hit as hard as the manufacturing sectors, he added, noting that contract logistics in all sectors is coming back.

"Year to date, signs are improving, with about 60 percent of that in the logistics wing. But it’s not a tide that will make all ships rise," noted Hartnett. "Regional growth is spotty and mixed. The NAFTA (North American Free Trade Agreement) countries will have a medium level of improvement and the overseas stars will be China and Brazil. The EU will be the laggard, with most forecasts suggesting just 1 percent growth this year."

Hartnett stressed that none of this represents a long-term forecast, however.

"Our commercial rental fleet has seasonal surges, and is most sensitive to changes," he said. "But when the demand is there, we can provide heavy duty trucks for companies that have reduced their own assets."

Meanwhile, Penske is set on striking up strategic alliances with companies that can respond quickly to market changes and are capable of reducing costs rapidly.

"We are looking out for best practices, and companies with the most agile supply chains," said Hartnett. "That includes those capable of stripping out capacity when needed."

And that means more manufacturers will be "near-sourcing" in the future, he said.

"Not that out-sourcing will necessarily go away," Hartnett added. "In this global economy, it still makes sense to use low-wage countries for much of the labor, but we see a hybrid emerging where local demand will be taking up a lot of regional inventory.

Consumers in Mexico, for example, will be buying from wholesalers and retailers who have goods made in the region, according to Hartnett. And as a consequence, manufacturers will have to balance their logistics portfolio to ensure a robust supply chain.

In the end, said Hartnett, "cash is king," and those who protect their capital by not carrying costs and inventory will prevail. "Especially in this tight credit market," he added. He advises shippers to avoid locking themselves into long-term contracts with distribution centers, and to work closely with supply chain partners.

"It’s still not a good time to be taking chances," he said. "Smart risk management means taking a collaborative approach. We try to get inside our partner’s business and help them reduce cost by building in efficiency."

The final key, said Hartnett, is to "execute flawlessly," while keeping communication channels open and transparent. At the same time, both parties must realize that innovation will remain a shared goal.

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