July 2010 Logistics Magazine

By now, most readers have already digested the top line data from the 21st Annual State of Logistics Report (SoL) that was officially released back on June 9. And if for some reason you missed the news, I’ll cut to the chase.

According to the findings gleaned by author and economist Roz Wilson, the cost of the U.S. business logistics system declined 18.2 percent in 2009, the single largest year-over-year drop in the history of the report. And while the market was more than prepared for a drop in that number due to the long-running and savagely-ruthless recession, I can’t help but think that most of us were a little surprised when we actually saw all the figures in black and white.

Without giving away too much of the data from Patrick Burnson’s excellent analysis of the report, here are some of the telling takeaways: Business logistics costs fell to $1.1 trillion in 2009, a decrease of $244 billion from 2008. In fact, logistics costs as a percentage of our nominal GDP—an annual SoL measure that analysts believe gives us the best historical snapshot of the market—fell to 7.7 percent, the lowest level since that measure has been recorded.

Just how brutal was the recession’s blow to the U.S. logistics system? If you combine the $244 billion drop in 2009 with the drop recorded in 2008 ($49 billion) you’ll find that total logistics costs have declined nearly $300 billion since the recession started. In 2009 alone, money spent on overall freight transportation dropped 20.2 percent.

I think you’re getting the picture.

In our annual analysis of the report, Burnson sits down with Wilson to put some perspective behind this data in an effort to help shippers navigate the current and upcoming freight environment. And as Wilson points out in the conversation, it’s important to keep these figures in perspective since they do paint a historical portrait.

Indeed, transportation analysts and the vast majority of our sources are in firm agreement that all trends are pointing to an improving economy; which in turn is leading to increasing volumes and better times ahead for beleaguered carriers across all the modes. In fact, many shippers may be surprised to read in our mode-by-mode breakdowns and John Paul Quinn’s mid-year rate outlook just how quickly volumes are increasing, capacity is tightening, and rates are shooting skyward.

“Shippers were shell shocked last year due to low volumes and extreme rate pressures, and very soon became risk adverse,” says Wilson. “This year, they would be wise to be first at the table negotiating rates and capacity…guaranteeing a minimum level of business in return for guaranteed carriage and limited rate hikes two or three years out.”

And while the worst of times may be behind us, adds Wilson, shippers will be faced with a brand new set of tactical challenges as the economy inches forward on its slow recovery path. It’s time for shippers to heed Wilson’s advice and make their move.