Logistics sector to track national recovery closely
Dale Rogers was getting strong hints about a coming recession in the spring of 2007, more than a year before the downturn sank its teeth into the American economy.
Rogers, director of the Center for Logistics Management at the University of Nevada, Reno, saw signs that the transportation industry was beginning to slow before the recession. That’s a sign, he says, that inventories aren’t moving down the supply chain because sales are slowing.
So what does Rogers see today for the logistics sector of the northern Nevada economy?
Some good news: Things probably are at a bottom. But also some bad news: Things aren’t likely to fully recover for 18 to 20 months, maybe until the second quarter of 2011.
“Things are little better than they were, but they’re still not great,” Rogers says.
But unlike other sectors of the region’s economy which are expected to lag the national recovery, the health of the logistics industry is closely tied to consumer spending and manufacturing world-wide.
“The regional (mainly California) and national economies play a bigger role in business volume for northern Nevada’s logistics industry than the local economy,” says Steve Reid, president of Bender Group, a Reno-based logistics company.
As 2010 dawns, logistics executives are keeping a close eye on the financial health of troubled trucking companies and ocean carriers.
With widespread overcapacity in the transportation sector, shippers had a strong upper hand in recent months, says Russ Romine, president of Reno’s Griffin Transport Services.
But if carriers fold, overcapacity could disappear quickly and shippers could feel upward pressure on shipping costs.
The region continues to see development of third-party logistics companies, which specialized in order-taking, warehousing and distribution for a variety of clients.
In some instances, the companies known by the shorthand of “3PL” take actually ownership of the merchandise while it’s in the supply chain.
“It makes a ton of sense to move to a flexible provider,” says Rogers.
Bender Group has been among the beneficiaries of the growth in 3PL, and Reid says the company aggressively seeks more 3PL business.
“On the other hand, we are being cautious about investing in capital expenditures, only doing so when there is a solid and quantifiable revenue correlation to that equipment,” he says.
The health of the logistics industry is a critical question to Denver-based ProLogis, the largest landlord of industrial and distribution space in northern Nevada.
Scott Lamson, the company’s western regional director, says ProLogis is seeing more stability in its rent rolls and has seen an uptick in leasing activity.
“We see that there are a lot of long-term growth drivers in Reno,” Lamson says. “Reno is still a very key logistics market for the western part of the United States.”
The region’s proximity to major California markets, as well as the ability of logistics companies to easily serve markets in the Northwest from Reno, play a major role in its strength, says Lamson.
Tax advantages for logistics operators also are important.
Chuck Alvey, president and chief executive officer of the Economic Development Authority of Western Nevada, says Reno is well-positioned to serve as a global, as well as a regional, distribution hub.
The proximity of Reno and Sparks to the Port of Oakland, as well its access to the Port of Long Beach, draw the attention of logistics operators who are linking markets around the Pacific Rim.
Logistics companies looking to expand or create new operations in northern Nevada won’t be pressed to find distribution center space.
Colliers International, a commercial real estate brokerage, estimates that about 15 percent of the distribution and industrial space in the region is vacant.
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