America has barely begun building its much-needed fortifications against terrorism. And that means U.S. supply chains remain at risk for disruption from a terrorist attack. "Cargo security for all modes is lagging behind," contends economist and consultant Rosalyn Wilson, author of the 16th "Annual State of Logistics Report."

This year's report highlights the shortcomings in the nation's efforts to protect its shores and reduce security threats against domestic and international shipments. "In the three-and-a-half years since 9/11, several programs have been instituted that are designed to reduce the security risks inherent in our supply chain," writes Wilson. "To date, none of these programs has been successful in eliminating or significantly reducing our vulnerability."

For logistics managers, the unfinished state of the national security system increases the prospects for a supply chain catastrophe caused by a terrorist attack. Such an event could severely disrupt the U.S. economy and burden shippers with enormous expenses should their cargo be delayed or have to be rerouted.

The "Annual State of Logistics Report" was started 16 years ago by the late Robert V. Delaney as a way to quantify the value of logistics in the U.S. economy. Prior to his death, Delaney had worked with Wilson to prepare the report, which has become widely known as an important source of economic statistics about transportation and distribution. Wilson continues to produce the annual report under the auspices of the Council of Supply Chain Management Professionals (CSCMP).

The report follows Delaney's original methodology, which uses the Alford-Bangs Formula to calculate the value of logistics as the sum of three components: inventory-carrying costs, transportation costs, and administrative costs. In 2004, those costs amounted to just over $1 trillion. (See chart below.)

Despite higher freight rates, particularly for trucking services, logistics costs as a percentage of the nation's gross domestic product (GDP) remained at 8.6 percent, the same as it was in 2003. That number represents the lowest level achieved to date.

Delaney originally had compared logistics costs to the GDP in order to measure the economic gains resulting from transportation deregulation. Prior to the full deregulation of truck, rail, and air transportation in the early 1980s, logistics accounted for a higher percentage of the nation's GDP than it does today. In 1982, the threshold year for U.S. deregulation, logistics represented 14.5 percent of the GDP. During the 1990s, the ratio of logistics costs to GDP fell to around 10. Over the last four years, that ratio has remained well below 10 percent. (See chart below.)

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