Building Fortress America (page 2)

-- Logistics Management, 7/1/2005

Page 2 of 3

Given last year's widespread rate hikes, it's somewhat surprising that the logistics-to-GDP ratio didn't rise. Overall transportation costs did increase, from $600 billion in 2003 to $636 billion in 2004, according to Wilson. The biggest chunk of those additional transportation costs came from the trucking industry. In just one year, shippers' spending on trucking services increased by $27 billion, from $482 billion in 2003 to $509 billion in 2004.

That additional spending seems to be helping motor carriers weather the ongoing labor storm. "Despite pay increases necessary to encourage driver recruitment and retention, trucking profits were pushed up by surging freight volumes and constrained capacity," Wilson observes in the report.

With railroads operating at near capacity last year—the Association of American Railroads reported that intermodal volumes set weekly records throughout most of 2004—shippers' spending on rail services went up as well, rising from $38 billion in 2003 to $42 billion in 2004. Spending on maritime and domestic water traffic edged up, from $26 billion two years ago to $27 billion in 2004. Shippers' payments to freight forwarders climbed from $16 billion in 2003 to $18 billion last year, while air cargo spending jumped from $29 to $31 billion.

Inventory Costs on the Rise

The cost of holding finished goods in storage mushroomed in 2004, as carrying costs increased from $300 billion to $332 billion. Those costs break down as follows: $23 billion for interest charges, $227 billion for taxes, obsolescence, depreciation, and insurance, and $82 billion for warehousing.

Wilson attributes most of the rise in carrying costs to higher interest rates and a jump in inventory levels. To determine interest charges, she multiplied the value of the nation's inventory—$1.63 trillion—by the annualized commercial paper rate of 1.4 percent to get a rounded value of $23 billion. Wilson notes in her report that the average investment in all business inventories followed the pattern of the last few years and set another new record. "On an annualized basis, the value of all business inventory has risen every year since 2001," she writes.

Of necessity, the study's total costs for warehousing are estimated. That's because the warehousing industry comprises both public and private facilities, but only data for public warehousing is reported by the Commerce Department's Bureau of the Census. Wilson derives her estimate for the value of private warehousing by analyzing the public warehousing data, assuming that it closely reflects conditions and trends in private warehousing.

In addition to transportation and inventory-carrying costs, the figure for logistics includes two other components: outlays for shipper-related costs and administration. Shipper-related costs encompass such expenses as loading and unloading, transportation equipment, and traffic department operations. In 2004, shipper-related costs reached $8 billion, $1 billion more than the previous year. Logistics administration expenses, meanwhile, rose from $36 billion in 2003 to $39 billion in 2004.

When all of the component costs are totaled, they indicate that spending by U.S. shippers on logistics last year exceeded $1 trillion—only the second time that has occurred in the history of the report. Those costs, however, kept pace fairly well with growth in the nation's output of goods and services. "The growth in U.S. logistics costs in 2004 only slightly outpaced the growth in nominal GDP of 6.7 percent," explains Wilson in the report. "The economy is still growing."

Unprepared for the Worst

In addition to reporting the numbers, each year Delaney and Wilson have spotlighted a key development in the logistics industry. This year, Wilson outlined the issues surrounding national security. Her take: "The security report card is not making the grade." Continued...

Previous 1 2 3 Next