Smart Money

Smart Money

At the Council of Supply Chain Management Professionals annual meeting last month and another era ago, ProLogis Chairman and CEO Jeffrey Schwartz tried to offer some soothing words to a logistics industry just starting to feel the impact of an oncoming financial upheaval.

Just as you are never really quite as smart as you look in an economic boom period, he said, you also are never quite as bad as you appear to be in an economic downturn.

That apparently wasn't good enough for ProLogis investors and the industrial real estate firm's board of trustees; they made Schwartz the most prominent victim so far this fall of a deep economic downturn, and any look at the business landscape suggests the pain won't end in the ProLogis boardroom.

That's because the problems that seemed to explode so suddenly after 14 years of remarkable growth at the nation's largest warehouse developer are turning up at other companies. And they are turning up in similar ways, deeper in financial reports and in the fine print beneath the bold but increasingly misleading reports on profits and losses.

With a $521.5 million operating profit in the first nine months of 2008, ProLogis should have been in good shape. But as Traffic World Associate Editor William Hoffman reported in the Oct. 6 edition, ProLogis also found a 60 percent decline in new starts of bulk distribution centers in top U.S. markets from the fourth quarter of 2007 to the second quarter of this year, a startling drop.

A closer look shows ProLogis' cash deteriorated in the first three quarters of 2008 by nearly $60 million and its net cash from operations fell from more than $1 billion in the first nine months of last year to $663.7 million this year.

That's not the kind of swings investors expect from a real estate investment trust but the company is hardly alone.

The $2.5 billion net loss General Motors reported in the third quarter, for instance, wasn't nearly as important as that GM says it burned through $7.7 billion in cash. That's a big reason GM is looking for a bailout and it's a strong suggestion why one logistics executive told us back in September "cash is king."

Plenty of transportation companies certainly understand that as more balance sheets suggest the stakes in the push-and-pull between vendors and customers, between receivables and payables, are growing far higher. It's one reason Circuit City, which owes more than $1 billion to creditors such as Hewlett-Packard and Sony, filed for bankruptcy this month and it's a big reason more companies are cutting off all but the most necessary spending as they try to turn receivables into cash.

That's why it is so impressive that cash and receivables in many recent trucking industry reports were so, well, in balance. Werner Enterprises, for instance, saw its cash holdings triple over the first nine months of the year.

Others didn't look quite that good in the fine print, but they're hoping to get back to one of those economic boom periods when they'll start looking smart again.