State of Logistics 2016: US Business Logistics Costs Slow Considerably with 2.6% Growth

It’s a buyer’s market for business logistics right now, but that is a fleeting condition subject to rapidly changing conditions in the $1.408 trillion U.S. freight sector, based on data in the 27th Annual State of Logistics Report released today at the National Press Club. The report is sponsored by the Council of Supply Chain Management Professionals (CSCMP).

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It’s a buyer’s market for business logistics right now, but that is a fleeting condition subject to rapidly changing conditions in the $1.408 trillion U.S. freight sector.
 
That’s the flash report from the 27th Annual State of Logistics Report released today at the National Press Club. The report is sponsored by the Council of Supply Chain Management Professionals (CSCMP). For the first time, CSCMP collaborated with global strategic management consulting firm, A.T. Kearney, as the new author and researcher. Penske Logistics continued in its longstanding role as top supporter of the report.
 
The report reveals total U.S. business logistics costs rose to $1.48 trillion in 2015, a 2.6 percent increase from the previous year. That represents a considerable slowdown from previous years.
 
“Today, the logistics system is sound,” the SoL report concludes. “Desired services and features are generally available, and a system designed for cost efficiency is delivering pricing favorable to shippers. However, gaps in infrastructure and accelerating trends for speed will increasingly pressure a system that was not designed for e-commerce-driven ‘last mile, last minute.’”
 
Business logisticians can give themselves a pat on the back for driving down total U.S. business logistics costs (USBLC) six basis points from the previous year. USBLC amounted to $2.15 trillion last year, or a scant 7.85 percent of Gross Domestic Product. That was compared to USBLC being 7.91 percent of GDP in 2014. The all-time low was during the Great Recession in 2009 when USBLC was 7.37 percent of GDP.
 
“Supply chain transparency continues to grow in importance for shippers and third-party logistics providers,” said Penske Logistics President Marc Althen. “This is driving significant technological change for 3PLs and shippers alike as they collaborate and share more real-time information to enable data-driven business decisions and meet the growing needs of consumers.”
 
“This highly anticipated report contains the statistics and industry insights that will not only help our members do their jobs better, but also better prepare them for the business demands ahead,” said Rick Blasgen, president and CEO of CSCMP.
 
The report includes a focused narrative on the economic environment impacting logistics; insights from interviews with industry leaders, including shippers, carriers, and analysts; a spotlight on relevant trends; and a strategic point of view on the state of the industry.
 
“It is a dynamic time for the logistics sector—macro economy, new business models, technology,” Sean Monahan, A.T. Kearney partner and co-author of the 2016 State of Logistics Report said. “We are pleased to support CSCMP in the development of this report.”
 
Among the report’s key conclusions is the logistics industry is entering a new era. The report predicts over the next decade, the logistics industry will face “disruptive forces,” including technology and operational constraints that threaten to fundamentally change the rules of the game.
 
It may already be starting. Motor carriers are experiencing rate weaknesses, especially in the $278 billion truckload market, as temporary overcapacity has given shippers some pricing power. The report concluded that TL rates and demand for transportation are “soft, and continue to fall.”
 
While this is occurring, the TL sector copes with nearly 100 percent driver turnover as the truck driver shortage continues. “Despite softening demand and slower rates, competition for drivers remains intense,” the report concludes.

There are bright sports for asset providers, however. The $82.2 billion parcel and express sector, fueled by double-digit growth in B2C online commerce, continues to grow. Its main drivers are the “explosion” of B2C e-commerce and omni-channel retail, the report says.

On the other hand, water shipping is in “flux,” as containerized shipping is experiencing significant overcapacity. Like truckload, this is creating a “favorable rate environment” for U.S. shippers, the report concludes.
 
The $67 billion air freight sector continues to be in the dumps. While the industry copes with overcapacity and falling rates, demand for airfreight services remains “sluggish” due to economic uncertainty. At the same time, the report says, overcapacity is being exacerbated by a shift to wide-body aircrafts.
 
The $29.5 billion pipeline industry is catching up with demand as U.S. oil and gas production has surged over the past decade. U.S. pipeline investment will account for three-quarters of all planned capital investment in transportation modes, the report says.
 
Another sector experiencing woes is the $80.7 billion railroad industry due to sharp drops in demand. A steep decline in coal traffic and crude by rail, macroeconomic weakness, and a pause in the growth of intermodal traffic resulted in overall rail volume reduction, the report concluded.
 
Meanwhile, technology continues to play a key role in the evolution of the 3PL market. At $196 billion, the US 3PL market now accounts for 11 percent of US logistics spend. IT has risen by roughly 7.5 percent annually from 2009 and 2014. But in a sign of things to come, that growth is expected to be 5.6 percent over the next four years through 2018.
 
CSCMP’s State of Logistics Report is complimentary to all CSCMP members. The report is also available for purchase for nonmembers. Find out more information here: https://cscmp.org/member-benefits/state-of-logistics


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From the January 2018 Logistics Management Magazine Issue
Industry experts agree that costs across all sectors worldwide will continue to rise in 2018, and the most successful shippers will be those that are able to mitigate their impact on profitability. And, the right technology will play an increasingly vital role in driving efficiencies across the global logistics network.
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