Logistics and transportation companies were hit early and hard by the economic downturn. The American Association of Railroads estimates that the rail industry had assets worth $43 billion standing idle as of February 2010 – almost 30%. On the air freight side, about 15% of freighter capacity was removed from the market last year. The same situation is true for trucks and containerships. This excess capacity drove down profitability. Many companies went out of business but many of the ones that survive the recession will emerge leaner and wiser – in a “new normal” business environment.
In this new normal business environment, there are a few overriding themes: 1) leaner inventory management policies (to accelerate cash flow). 2) a renewed interest in SKU rationalization (to impact costs and efficiencies). 3) Increased flexibility and openness to new ideas. For example, it is becoming common to review the relative efficiency of different modes, the location of distribution centers and whether they are willing to wait a bit longer to pay less for deliveries.
I’ve seen these themes arising more and more freqeuntly with my clients. Undoubtedly, cash is king in today’s business environment. I’ve written several articles about these topics. For example, refer to my recent newsletter on inventory reduction/ accelerating cash flow: click here.