Steve Jacobus is in the logistics business and, as such, he has a pretty good feel for what’s happening in the southeastern Wisconsin economy. From manufacturers storing and shipping product through The Olson Company, to steel processors in construction to the technology-heavy telecom industry, Jacobus’ companies see it all.
And the news is both good and bad from Jacobus’ point of view.
Steel down
One of Olson’s operations, the Steel Depot, is coming off one of the steel industry’s worst years and Jacobus doesn’t see it getting much better in 2002.
"With the exception of the rebuilding of the World Trade Center, you’re not going to see large structures being built this year," Jacobus said. "Large-scale construction is down significantly."
The Steel Depot serves as a conduit between out-of-state steel producers and Wisconsin steel processors. The Depot picks up shipments of raw steel and stores it in Brookfield, and delivers it just in time to the processors. While at the processors delivering the raw steel, the Steel Depot drivers pick up finished product and then deliver it to customers throughout Wisconsin and northern Illinois.
Telecom coming back
Olson also works closely with the telecom industry, boasting customers like Nortel, Lucent Ameritech, MCI and Sprint. That industry has struggled greatly over the past year from what Jacobus termed as production over capacity. Manufacturers like Lucent and Nortel compounded their problems by financing smaller telecom companies’ purchases of their own products. When the smaller companies failed, the manufacturers found themselves holding a slew of bad debt.
The good news/bad news scenario of any high-tech field is that the technology becomes outdated so quickly that, after writing off their losses for the over-capacity, the manufacturers are back to producing new products.
Jacobus is looking for a turnaround in the telecom industry around the third quarter of this year.
"On the other side of it, Ameritech posted one of its best years ever in 2001," Jacobus said. "But they weren’t buying new technology. We’re starting to see some new spending in the first half, first quarter of this year."
Effects of 9/11
Manufacturing in the southeastern Wisconsin economy continues to shrink as more companies are leaving to go overseas, Jacobus notes, although some of the migration may slow down due to shipping and security concerns after Sept. 11.
"We saw quite a bit of customer base reduce manufacturing and then bring back in-house more of the functions we were providing," Jacobus said. "We probably won’t see much of that turnaround until the third and fourth quarter of 2002 when you’ll start seeing some growth again."
Other effects that will impact businesses this year and perhaps years to come, according to Jacobus, are: insurance increases, where the trucking industry has seen increased premiums of up to 250%; security costs have skyrocketed, especially for imported goods, such as textiles from the Middle East.
Just-in-time manufacturers here have been impacted by the slowdown in shipping from overseas manufacturers, causing many to start building up safety stock, the very antithesis of the just-in-time method. Adding safety stock causes higher carry costs for the manufacturer – costs that are usually passed along to the consumer. Even the auto industry has said it would start using safety stock, Jacobus said.
"The US Commerce Department reported that the cost of shipping and insuring imports last year was about $36 billion and estimates that costs will increase another $4.3 billion due to security this year," Jacobus said. "And another thing you’ll start seeing and ultimately passed on to consumers is security surcharges. … The government has mandated that every airport must now have bomb detection devices and scanners and so forth, and someone’s going to end up paying for that. American Airlines has already instituted a $25 charge per air bill for international shipments."
Jacobus also noted that protections surrounding the food supply are on the way as well. "There are going to be tighter controls on making sure that product can’t be tampered with at any stage," he said, noting increased security measures for food may also drive up prices.
Olson has already instituted changes in procedures involving loading trucks at its warehouses and who is allowed inside the warehouses. And for those drivers involved in servicing the telecom industry, background checks have become much more in depth at the request of their clientele, says Jacobus.
"My hope and my sense is that we really hit the bottom in the second half of last year and we’re starting to sense some new activity and renewed optimism," Jacobus says. "From a practicality standpoint, we’ve hunkered down in the second half of last year and anticipate seeing some growth again in the third and fourth quarter."
Jan. 18, 2002 Small Business Times, Milwaukee
