Top concerns: costs, volatile fuel/oil prices

In MFG.com’s latest two-part MFGWatch Quarterly Survey of North American Manufacturers, covering the second quarter of 2011, product manufacturers report supply chain disruptions have jumped to its highest level in a year (48 percent).

Only 15 percent say they will begin or increase exports, while the remaining 85 percent state they will maintain, decrease, or avoid exporting altogether.

North American product manufacturing companies continue to seek out new suppliers and expand their stables of supply-side resources. In Q2 2011, 45 percent of these companies expressed a need for new suppliers at the same levels as they’ve expressed historically (compared to 46 percent in the previous quarter). The consistency suggests an instability in the supplier markets due to fewer options, logistics costs, and economic instability in supplier businesses.

The number of product manufacturers reporting significant supply chain disruptions jumped substantially (to 48 percent, up from 42 percent in Q1), matching numbers not seen since Q2 2010. Interestingly, this significant jump in supply chain disruptions comes at a time as supply chains were said to be stabilizing after the disasters in Japan earlier in the year.

Fewer Canadian and U.S. manufacturers report repatriating production into or closer to North America than at any time since Q1 2010, significantly off from the 27 percent that reported examining reshoring in the last quarter.

World Container Index Goes Live

Entering a new era for box shipping

The World Container Index (WCI), the first Europe-based assessment of container freight rates, is now live, ushering in a new era of price discovery and risk management solutions in the container freight market.

The first published WCI freight rates show increases on some, but not all, major routes. The spot container freight rate index on the Shanghai-Genoa route was $2,270 per 40-foot container, up eight percent from the first week of August.

On the Shanghai-New York route, the latest spot rate is $3,477 per 40-foot container, up 11 percent on the assessment made in the first week of August. The WCI rate indices for the backhaul routes from Europe and the U.S. to China have remained stable in the past month.

Full launch of the WCI follows a long period of development, capped by several weeks of external testing with selected shippers, lines, and forwarders.

Data is gathered from actual transactions reported by panelists in the U.S., Europe, and Asia, representing a cross-section of users in the container freight market.

The WCI reports spot container freight rates for major East West trade routes and consists of 11 route-specific indices representing individual shipping routes and a composite index.

U.S. Logistics Market Stays Strong

Recession’s impact was low

International trade and movement of goods have become the primary drivers of demand for logistics real estate over the past 10 years. Large warehouse and distribution buildings have been constructed along the coasts in close proximity to sea ports handling inbound containerized cargo flows as well as inland near intermodal rail yards that facilitate the movement of goods to end consumers.

Although the sector was not immune to the recession, its impact was muted by corporate cost reductions that resulted in supply chain reconfigurations and further outsourcing, generating demand for logistics real estate. At mid-year 2011, logistics real estate stood above its pre-recession peak, a result not seen in the overall industrial sector.

The future looks equally bright. Containerized cargo is expected to grow at a multiple of the overall economy, and sea ports and rail companies are making considerable infrastructure investments to keep up. Although investment into the real estate logistics sector slowed to historic lows during the past two years, positive demand has driven vacancies down and new speculative construction is on the horizon.

Supply Chain Trends

Lowering transportation costs, increase planning

Aberdeen Group has found that almost 60 percent of shippers are focused on improving the ability to analyze and automate true freight spend. They have leveraged transportation spend management solutions together with process improvements to keep costs under control and maintain high levels of carrier and freight performance.

“Today’s supply chain executive has taken many steps to reduce transportation costs. In fact, previous Aberdeen reports over the course of the last two years have highlighted several examples of companies with savings of up to 36 percent in baseline freight costs. However, the economic downturn produced consolidations and constrictions in transportation capacity by lane and mode,” explains Bob Heaney.

Air Travel Market Recovering

Market maintains resilience

According to Boeing, air travel is expected to sustain six percent growth in 2011 and keep the growth rate at or above the historical trend through the middle of the decade.

Although volatile fuel costs, political upheaval in the Middle East and North Africa, and unresolved government debt in many industrialized economies create risk of a renewed downturn, commercial aviation has weathered such shocks to the system in the past. Recovery has followed each event as the industry reliably returned to its long-term growth rate of approximately five percent per year.

The long-range forecast for 2011 anticipates delivery of 33,500 new airplanes over the next 20 years, valued at more than $4.0 trillion.

Single-aisle airplanes account for the majority of deliveries over the next 20 years—70 percent of the airplanes and 48 percent of the value. Rapidly expanding air service within China and other emerging economies and the spread of low-cost carrier (LCC) business models throughout the world drive this market segment.

The twin-aisle market, which includes efficient long-range airplanes, is the fastest growing segment of the market, accounting for 22 percent of the delivery units and 43 percent of the delivery dollars.

High fuel costs are compelling airlines to accelerate replacement of older airplanes. In addition, the increased capabilities of the latest long-range, twin-aisle airplanes create opportunities for operators to take advantage of the ongoing liberalization of air transport markets to open new nonstop routes. wt