LOGISTICS: WAREHOUSING & DISTRIBUTION - Globalization creates demand for logistics expertise

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Increased competition, greater uncertainty leads companies to rely on third partiesBy Peter A. Buxbaum, AJOTThe phenomenon of a globalized economy is bringing opportunity to third-party logistics providers, according to Joel Anderson, president and CEO of the International Warehouse Logistics Association, an industry group based in Des Plaines, IL, in an exclusive interview with the AJOT. Anderson joined the ILWA in April 2006 after heading the California Trucking Association for thirteen years.
There are two sides to globalization, from a logistics industry perspective. First, a worldwide economy creates “hypercompetition,” as Anderson put it, constantly pressuring manufacturers and retailers to make their supply chains more efficient. At the same time, globalization has created tremendously long supply chains, some stretching to 14,000 miles across oceans and continents. This, in turn, creates an increased level of supply-chain risk, which has led manufacturers and retailers to increase their inventory levels, according to Anderson.
Both of these elements of globalization have been good for third-party logistics providers, Anderson posited. “Increased competition continues to pressure manufacturers and retailers to create leaner supply chains,” he said. “Manufacturers want to focus on creating products and developing their brands. Retailers want to create positive buying experiences that bring consumers through their doors. For the middle part, they turn to specialists like our members because that is what we do.”
At the same time, globalization leads to longer supply chains and this has lead to a greater need for inventory, according to Anderson. “Two years ago, longshore workers went on strike and the ports of Los Angeles and Long Beach were shut down for two or three days,” Anderson said. “But the supply chain ripples went on for months. Safety stock is a function of uncertainty, the mathematical result of adding days to delivery cycles.”
Anderson added, however, that the growth in inventories has also been due to weakness in the retail sector. “Consumers are not taking products off the shelves as fast they used to,” he said.
This does not discourage Anderson, however, because the need for larger safety inventories means that warehouse operators have more to handle, and also have the opportunity to sell manufacturers and retailers their value-added services that make up the “middle part” of the supply chain to which Anderson alludes. “Logistics providers are penetrating further down into their customers’ supply chains,” he related. “They are operating re-supply facilities and performing kitting, labeling, reverse logistics, and truck scheduling services. More retailers want us to handle inventory flows and truck scheduling. That is why we see growth in our segment of the industry. Our customers can spend more on brand awareness, while our members handle their logistics faster, cheaper, and better.”
Private equity deals and alliancesAnother indication of the current importance of the warehousing and logistics industries is the attention being paid to them by the private equity markets. Private investment pools are facilitating industry mergers and acquisitions, or, in some cases, taking outright control of third-party logistics companies. The Jacobson Companies, a Des Moines-based warehousing and logistics provider; Minyard Food Stores of Coppell, Texas; EGL Inc., a Houston-based global logistics provider; and the acquisition and rebranding of TNT Logistics to CEVA Logistics are all examples of private equity deals in the warehousing and logistics industries in recent months.
Another trend the warehousing industry has seen has been in the formation of alliances among small warehousing companies. “Such a company may grow with a shipper based in Southern California,” Anderson explained. “Then the s

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American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.