Business logistics costs rise to 9.9 percent of GDP in 2006

John D. Schulz, Contributing Editor -- Logistics Management, 6/6/2007

WASHINGTON—The cost of business logistics rose over 11 percent last year to a record $1.305 billion. For the fourth straight year those costs rose as a percentage of Gross Domestic Product as well, reaching 9.9 percent of the United States GDP in 2006.

Still, the author of the widely anticipated 18^th annual State of Logistics report issued by the Council of Supply Chain Management Professionals claimed that the nation’s logisticians—perennially asked to manage longer, more complex moves often involving more than one mode—are doing a “very commendable” job.

“The good news is that this does not necessarily mean we are doing something wrong, rather it reflects that we are doing things differently,” said Rosalyn A. Wilson, the author of the study that was first published 18 years ago by the late Robert Delaney. “Put another way, managing logistics in today’s complex global environment costs more.”

With fuel as the main driver, transportation costs rose 9.4 percent last year, accounting for 6.1 percent of GDP. Trucking, which accounts for nearly half of all transport, rose by $52 billion to $635 billion, an 8.8 percent increase. Oddly, that increase came almost entirely through rising fuel surcharges as actual tonnage fell for the first time in many years, down 1.3 percent. Lack of drivers and reduced demand led some carriers to report idle or underutilized equipment.

Meanwhile, rail is soaring. Rail transportation costs rose 12 percent last year with freight revenue for the Class I rails up $5.8 billion, or 13 percent. Overall rail revenue hit $54 billion, 8 percent of trucking’s revenue but rising.

“The modes of transportation are working together more than ever,” said John Lanigan, a former senior Schneider National executive who is now executive vice president and chief marketing officer for BNSF Railway. Noting that six of BNSF’s top 10 customers are trucking companies and steamship lines, Lanigan added: “We don’t even look at them as competitors any more.”

Higher costs for fuel, longer and more complex moves and higher inventory costs were cited as underlying factors behind the rise in logistics costs. As a percentage of GDP, those costs hit a record low of 8.6 percent in 2003 (the last year of $30-a-barrel crude). The last year they exceeded 10 percent was 2000. By comparison, however, those costs were 12.3 percent in 1986 and nearly 17 percent of GDP in 1979, the last year of regulated ground transport.

“Innovation—even in small increments—is the key to meeting the challenges ahead,” Wilson said.