2010 State of Logistics: Make your move

The cost of the U.S. business logistics system declined 18.2 percent in 2009—the largest drop in the history of the State of Logistics Report. But as the economy slowly improves, shippers will need to be more cautious and tactical as they face increasing volumes, tight capacity, and higher rates.

By Patrick Burnson · July 15, 2010

During World War II, the U.S. Navy enlisted world champion chess player Reuben Fine to calculate—on the basis of positional probability—where enemy submarines were most likely to surface. Years later, Fine was asked about the project’s outcome, and modestly replied: “It worked out all right.”

While logistics managers may not be consulting with chess masters these days, they are posing one big question to economic theorists willing to take it on: Is “The Great Freight Recession” finally coming to an end? Analysts and industry insiders are telling us that things are indeed getting better for shipper organizations, but that the tenuous business climate and tightened credit controls will make it difficult for carriers to rapidly expand capacity for the remainder of 2010. The shipper imperative, then, will be to collaborate with carriers like never before. With capacity tightening, a new urgency should be placed on mitigating risk and controlling cost.

The 21st Annual State of Logistics Report (SoL), released by the Council of Supply Chain Management Professionals (CSCMP) and presented by Penske Logistics at the National Press Club last month, confirmed what many shippers had been suspecting. The worst may be over, but as the economy continues its slow recovery, shippers are going to be faced with an entirely new set of tactical challenges. “We are definitely seeing a recovery,” says Rosalyn Wilson, the report’s author, “but not the kind that will generate a lot of new business this year. Granted, shippers have already made a great many sacrifices—that shouldn’t change suddenly in the short term.”

Indeed, according to Wilson’s research, the cost of the U.S. business logistics system declined 18.2 percent in 2009—the biggest drop in the history of the report.

Meanwhile, business logistics costs fell to $1.1 trillion, a decrease of $244 billion from 2008. Combined with the drop in 2008, total logistics costs have declined almost $300 billion during the recession. In fact, 2009 logistics costs as a percent of the nominal Gross Domestic Product (GDP) hit a historic low at 7.7 percent.

“Both major components of the cost models declined in 2009,” explains Wilson. “Inventory carrying costs fell 14.1 percent in 2009, and this decrease in carrying costs was due to both a 4.6 percent drop in inventories and a 10 percent drop in the inventory carrying rate.” Transportation costs, she adds, plummeted 20.2 percent from 2008 levels. Trucking, which comprises 78 percent of the transportation component, declined 20.3 percent while all other modes combined declined 20.5 percent.


About the Author

Patrick Burnson
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Article Topics

Logistics · All Topics
Latest Whitepaper
Reduce Order Processing Costs by 80%
Sales order automation software will seamlessly transform inbound emailed and printed purchase orders into electronic sales orders that can be automatically processed into your ERP system with 100% accuracy.
Download Today!
From the June 2016 Issue
In the wildly unstable ocean cargo carrier arena, three major consortia are fighting for market share, with some players simply hanging on for survival. Meanwhile, shippers may expect deployment shifts as a consequence of the Panama Canal expansion.
WMS Update: What do we need to run a WMS?
Supply Chain Software Convergence: Synchronization Realized
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
Optimizing Global Transportation: How NVOCCs Can Use Technology to Operate More Profitably
Global transportation isn't getting any easier to manage, especially for non-vessel operating common carriers (NVOCCs). Faced with uncertainties like surcharges—but needing to remain competitive when bidding against other providers—NVOCCs need the right mix of historical data, data intelligence, and technology support to make quick and effective decisions. During this webcast you'll learn how Bolloré Transport & Logistics was able to streamline its global logistics and automate contract management.
Register Today!
EDITORS' PICKS
Details Key to Cross-border Ease
Ever-changing regulations are making it risky for U.S. companies engaged in cross-border trade...
Digital Reality Check
Just how close are we to the ideal digital supply network? Not as close as we might like to think....

Top 25 ports: West Coast continues to dominate
The Panama Canal expansion is set for late June and may soon be attracting more inbound vessel calls...
Port of Oakland launches smart phone apps for harbor truckers
Innovation uses Bluetooth, GPS to measure how long drivers wait for cargo