How Warehousing will Cope with 2012

Leaders in the warehouse-based third-party logistics (3PL) business in general are encouraged about the prospects for the economy and their industry in 2012, even if their optimism is tempered by the knowledge that events could prove those predictions wrong.

Although the industry has enjoyed the beginnings of a slow economic recovery from the 2008 crash, the financial crisis in Europe and the regulatory environment here at home make those who head warehouse firms wary. That tends to dampen job growth in the industry.

The Bright Side

“I would hope that the little bit of sunshine that is finally breaking through the dark clouds of the economy will continue, and if it does I would think that will really help in encouraging people to bring in more inventory,” says Ron Massman, president and CEO of The Dependable Companies (www.godependable.com), based in Los Angeles, which has 1.5 million square feet of warehouse space as well as separate less-than-truckload, truckload, drayage and international transportation management operations.

“I think a lot depends on the world economy and the perception that people have as to how the economic climate is going to be going forward,” he says. “My feeling is that we will see a steady growth throughout the year, barring any big dips and assuming the solutions in Europe will take hold.”

“In general we still forecast an upswing of double digits for the 3PL industry for next year,” says Paul Verst, president and CEO, Verst Group Logistics (www.verstgroup.com), Walton, Ky., which offers public contract warehousing, transportation and contract packaging services in the consumer packaged goods market, primarily for retail and food manufacturers and users, like Procter & Gamble and Kroger’s Supermarkets, as well as the automotive sector. “We are budgeting a 10-12% increase in sales for our company for next year.”

Arthur Barrett, president of Barrett Distribution Centers (www.barrettdistribution.com), Franklin, MA, says that overall he is more optimistic than he has been in the last several years. He notes that 2012 is being tagged as a year of “renovation and rebuilding.” His company offers warehouse, distribution and supply chain management services to a variety of industry segments, with a focus on retail.

“The economy has been stale for quite some time now and companies have been sitting on cash rather than spending it,” Barrett observes. “Previously, frozen budgets have enabled lost creativity and operational conservatism. This coming year, budgets will begin to thaw as companies begin to reinvest. We expect to see companies investing in their infrastructure (retirement plans, capital expenses and retention programs) with the goal of strengthening their internal systems to be poised for growth.”

Brett Mears, executive vice president of Palmer Logistics (www.palmerlogistics.com), a Houston-based company that serves the chemical industry, also is bullish. “I believe that the warehouse-based 3PL industry will continue to grow strongly in 2012. Lease rates are still depressed vis-à-vis the market high back in 2007-08, so the time is right to save significant dollars (10-25% lower space cost) on your brick-and-mortar expense.”

He adds, “Specific to Palmer Logistics, I think we are going to experience sustained growth on the order of what we have historically seen over the past two years of 10-20% as companies continue to look to outsourcing to reduce or control costs, and to allow them to focus upon their specific core competencies.”

The Not-So-Bright Side

This optimism is tempered by views of Don Friddell, director of marketing for Kenco Logistic Services, LLC (www.kencogroup.com), Chattanooga, Tenn., who predicts that growth will actually slow down in 2012. Kenco is one of the nation’s largest warehouse-based 3PLs, serving the consumer products, retail, building materials, automotive and healthcare industries with warehouse, transportation and supply chain management services. (It also owns Kenco Toyota Lift, with branches in Chattanooga, Tenn., Dalton, Ga., Madison, Ala., King of Prussia, Pa., Cinnaminson, N.J., and Baltimore.)

“We expect slower growth in 2012 because many companies remain concerned with the future of the overall economy,” Friddell says. “Many of our customers are not willing to make any major changes. They are maintaining the operational heads-down mentality.”

“In the 3PL industry as a whole I think you’ll see moderate growth, says Mark V. DeFabis, president and CEO, Integrated Distribution Services, Inc. (www.integrateddistributionservices.com), Plainfield, Ind., which provides warehousing, fulfillment, transportation and freight management services to companies serving the retail markets. In his portion of the market he sees a fairly mature warehousing industry.

“When you look at the big statistics, almost all the manufacturers and other companies that were thinking about outsourcing their warehousing have pretty much done it,” DeFabis says. “In the big picture, there are not a huge number of companies coming into the market space.”