State of Logistics Report: New order, new opportunities for logistics managers
WASHINGTON, D.C.—According to the Council of Supply Chain Management Professionals’ 24th annual State of Logistics Report released today, logistics and supply chain managers are continuing to drive inefficiencies out of the business transportation system.
Logistics in the NewsState of Logistics 2016: Pursue mutual benefit AAR reports more declines for week ending October 8 Fast Deliveries to Grow by 40 percent Year-on-Year Until 2025, Says New Study Parcel pricing may be set to surge, says new study How API Technology Connects the Transportation Economy More Logistics News
Logistics ResourceHow API Technology Connects the Transportation Economy Thursday, October 27, 2016 | 2pm ET
Last year, business logistics costs were once again 8.5 percent of Gross Domestic Product (GDP), the same level they thy hit in 2011, the new report says. That means freight logistics was growing at about the same rate as the GDP.
Cost of the U.S. business logistics system rose 3.4 percent in 2012, according to the report—less than half the increase from 2011 and still short of the peak 2007 level. Business logistics costs were $1.33 trillion, up $43 billion from 2011.
Inventory carrying costs and transportation costs rose “quite modestly” in 2012, said the report’s author Rosalyn Wilson in her remarks. Inventory carrying costs rose 4 percent while transportation costs were up only 3 percent, thanks to weak and inconsistent shipping volumes and strong blowback by shippers for carriers to hold rates.
“Logistics costs as a percentage of GDP in the U.S. compares quite favorably to that of our trading partners,” Wilson said. “Slow economic growth has kept the percentage low, but the supply chain sector has made great strides in productivity, asset utilization, and inventory management in the past three years.”
These supply chain management improvements will continue even as higher volumes return to the market place, Wilson predicted.
In releasing the report at the National Press Club, Wilson noted that slow growth and lackluster job creation has caused the global economy to wallow in mixed levels of recovery. “This month will mark the fourth year of recovery after the Great Recession, and you’re probably thinking that here has not been much to celebrate,” said Wilson. “Is it time to ask, ‘Is this the new normal?’”
Wilson said that she believes we’re experiencing a “new order” that is translating into a new economic paradigm that is strongly affecting the logistics and supply chain sectors. This “new normal” is characterized by slow growth (GDP growth of between 2.5 and 4 percent), higher unemployment levels (7.5 percent in U.S.), higher reliance on part-time workers, and slower job creation.
For logisticians, this means less predictable and less reliable freight services as volumes rise but capacity does not. In areas such as ocean transport, Wilson said, this can mean slower transit times
“I do believe the economy and logistics sector will slowly regain sustainable momentum, but that we’ll still experience unevenness in growth rates,” Wilson predicted.
For cutting-edge logistics managers, however, the current environment also means great opportunities to secure increasingly tight capacity in an era of shrewd rate bargaining. This is partly because the trucking industry, in particular, is facing a lid on capacity because of higher qualifications for drivers while top carriers are becoming increasingly selective in their choice of customers.
“Truck capacity is still walking a fine line—few shortages, but industry-high utilization rates,” Wilson explained. “Qualified truck drivers have become a valuable commodity in very short supply.”
Wilson predicts that this shortage will exacerbate as the economy improves even further. She’s predicting the current driver shortage of 30,000 will hit 115,000 by 2016. In the ocean and air freight sectors, meanwhile, overcapacity is the issue. Railroads, meanwhile, have more than 20 percent of their freight cars in storage, she said.
The following summarizes the performance of individual freight modes last year:
- Trucking rose 2.9 percent. The sector is “just on the breach” of experiencing capacity problems due to higher regulations and lack of fleet growth.
- Rail costs rose 4.9 percent, well below its 16 percent increase in 2011. Class 1 revenue per ton-mile rose 5.3 percent even as ton-miles actually decreased 1 percent in 2012.
- Maritime costs fell 0.9 percent in another disappointing year for ocean carriers. Capacity is expected to rise 10 percent this year but these new vessels “will be difficult to deploy” without further damaging the industry’s dynamic, the report said.
- Air freight revenue gained 3.1 percent—domestic air cargo ton-miles rose 2 percent, but international fell 3.9 percent. The all-cargo air industry is facing “chronic over-capacity and deteriorating yield,” the report said.
- Oil pipeline ton-miles were virtually flat last year. But that was “more than offset” by rate increases as pipeline revenue rose 8.3 percent in this heavily economically regulated sector.
In summary, 2012 was “certainly not a great year from an economic perspective,” Wilson said. While the freight sector continues to improve, prospects for high growth are limited. “Slow growth will be with us for many years,” Wilson concluded.
About the AuthorJohn D. Schulz John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. John is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis.
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
European Logistics Update: Post-Brexit U.K. moving ahead, but in which direction? Badcock Home Furniture &more: Out with paper, in with Cloud TMS View More From this Issue