2012 State of Logistics: Slow and steady
July 01, 2012
When The Council of Supply Chain Management Professionals (CSCMP) released its 23rd annual State of Logistics Report (SoL) late last month, logistics and transportation management professionals were again advised to be patient: industry growth will slowly, but surely crawl back as the macro-economic picture improves.
The report, authored for the past eight years by Rosalyn Wilson, president of Delcan, Inc., an engineering, planning, management and technology firm, reveals that total U.S. business logistics costs in 2011 rose to $1.28 trillion, a 6.6 percent increase from the previous year, accounting for 8.5 percent of U.S. gross domestic product (GDP).
“The economy improved in more areas than it retreated over the course of my reporting,” says Wilson, “making me hopeful that there would be some genuine good news to report for 2011.”
But there really wasn’t. In fact, Wilson calls 2011 “a rather unremarkable year” for logistics statistics.
Consumer confidence trended upward since the 2010 report was unveiled last June, leading consumers to spend on items beyond necessities. “The negative side of that is that many dipped into savings or extended their credit,” she says.
During this time, Wilson says that businesses demonstrated their expectations of a stronger economy in 2011 by adding new workers and stepping up manufacturing, which continued into the first half of 2012. “The manufacturing sector of the economy has been in expansion mode for over 27 consecutive months, but just barely,” she adds.
The Annual State of Logistics Report represents a snapshot of the economy over the past year, the logistics industry’s key trends, and the total U.S. logistics costs for the previous year. The report also examines which sectors of the industry are recovering, which are facing challenges, and then highlights areas that can be targeted for increased investment.
While somewhat “unremarkable,” according to Wilson, here are some of the high level takeaways from 2011:
Trucking, which comprises 77 percent of the transportation component, posted a 6.2 percent rise, but the real leader was the railroad sector which saw a 15.3 percent increase.
Declines in manufacturing, financial difficulties in the European Union, China’s slowing economic growth, and shrinking import/exports all have the potential to stall momentum in the industry.
Inventory carrying costs increased 7.6 percent. The increase in carrying costs was due to higher costs for taxes, obsolescence, deprecation and insurance.
The result of higher inventories and historically low interest rates was a 31.4 percent drop in the interest component of carrying costs.
Air, water, and pipeline revenues declined in 2011, while railroad, truck, and forwarders experienced revenue growth.
- One of the leading manufacturing sectors was motor vehicles and parts, which grew 17.7 percent during the final three months of 2011. Americans spent more on vehicles, and companies restocked their supplies at a fairly robust pace.
Richard Thompson, executive vice president of the global supply chain practice for Jones Lang LaSalle, served as panel moderator at the SoL press conference at the National Press Club in Washington. For him, the SoL represents both a legacy and a “baseline that provides shippers with a year-to-year metric on the health of logistics.”
For example, said Thompson, the report validates that with overall revenue 15.3 percent higher than 2010, railroads gained market share over the course of 2011.
“This was especially true in intermodal since it didn’t experience capacity problems faced by the trucking sector,” says Thompson. “In fact, trucking companies are also using intermodal rail to help offset the impacts of driver shortages and the costs of acquiring and maintaining new equipment.” And in spite of tightening capacity and an overall decline in volume, he adds that trucking rates were still up 5 percent to 15 percent over the course of 2011.
Even with the air cargo sector’s record year for exports, the report shows that the industry still experienced a decline, with domestic air cargo revenue down more than 3 percent compared with less than a percent decline in international revenue.
The challenge facing the ocean container industry is even more disconcerting, says Thompson. “The carriers just keep building new vessels to keep up with competitors, when they really should be limiting capacity.” Thompson attributes this behavior to a holdover from the days when the mantra for ocean carriers was “grow or die.”
“But what they’re really doing,” adds Thompson, “is growing excess capacity, thereby contributing to rate erosion, service declines, and operational losses.”
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