2010 State of Logistics: Make your move

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.”

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.