State of Logistics 2016: Pursue “mutual benefit”

According to the “27th Annual State of Logistics Report” (SoL), logistics managers implemented wiser mixed-mode strategies to manage customer demands, optimized 3PL services to gain capacity when needed, and took advantage of the drop in fuel prices to drive U.S. business logistics costs down over the course of 2015. According to the report, from 2010 to 2014, overall U.S. logistics costs grew by an average of 4.6% annually, driven mainly by 5.5% annual growth in transportation costs. This year, however, the report found that growth slowed significantly, to just 2.6% between 2014 and 2015, with transportation costs—the largest single component—growing by only 1.3% in 2015.

“The short term good news is that this ‘shippers market’ will continue for the remainder of 2016,” says contributing editor John Schulz, the author of this month’s cover story that neatly summarizes the annual report (page 22). “However, according to the authors of the SoL, this favorable situation for shippers is fleeting.

Schulz’s report kicks off the 26th year that Logistics Management (LM) has devoted much of its July issue to putting the annual SoL into context. The report represents the clearest snapshot available of how economic conditions have shaped the current logistics landscape. Its release—which took place on June 21 in Washington, D.C.—sparks our annual investigation into the details of the findings and sends our entire editorial staff on a quest to summarize where each transportation mode currently stands in terms of service, capacity, and rates. While overall costs where driven down, Schulz contends that the deeper factors revealed in this year’s SoL should send a warning flare across the bow of every logistics operation.

While we’re still in a shipper’s market, we’re about to enter a period of transition that will trigger many of the long lingering concerns about tighter capacity and higher rates.

“Shippers need to understand that this brief lull in the ever-rising logistics costs is due to the confluence of one-time factors, including bloated inventories, a strong U.S. dollar hampering exports, and a sudden surge in extra truckload capacity,” says Schulz. As we enter this period of transition, Schulz and the SoL authors insist that excess inventory will be sold off, the supply/demand equation among shippers and carriers will rationalize, and fuel and surcharges will continue their current path upward (see News page 13). To top it off, if the U.S. economy begins even the slightest tick up, the trucking industry will see some its greatest fears realized.

“The tightrope that trucking is walking is alarming,” says Schulz. “From demographics, tougher scrutiny of drivers, electronic logging devices, speed governors— all these things are hampering productivity and their costs are skyrocketing. When we see inventories fall and the economy take off then truck capacity will become much more limited.”

“It may sound cliché, but shippers need to act now to treat their asset providers as partners—and that means sharing data and costs. A year from now, those shippers who haven’t worked toward a state of ‘mutual benefit’ with their carriers and service providers may be left out in the cold,” Schulz says.