Shippers back in control as logistics market swings back, new State of Logistics report says

Total U.S. logistics costs soared to $2.3 trillion last year, growing 19.6% from 2022 and now representing 9.1% of the nation’s Gross Domestic Product (GDP), according to the newest State of Logistics report.

The 34^th annual project of the Council of Supply Chain Management Professionals (CSCMP) includes findings from consulting firm A.T. Kearney and industry partners Penske Logistics, LaserShip, Coca-Cola, Leaf Logistics, Kodiak Robotics, Morgan Stanley, and the Federal Reserve Bank of Cleveland, among others.

Entitled “The Great Reset,” the report paints a rapidly changing logistics environment in sharp contrast with the pandemic-affected years 2021-2022. Last year’s report found that supply chains were largely still “out of sync” from the effects of the pandemic. But those days are over.

“Concessions that were given during the pandemic are getting clawed back,” Marc Althen, a senior executive at Penske Logistics, says in the report.

It’s now “becoming increasingly clear” that shippers and carriers are united by a need to think more collaboratively and proactively about building new “strategic capabilities,” the report said.

But such agility cannot be achieved overnight, the report warned. Rather it takes lengthy planning and much resources, as well as top level executive commitments from the C-suite.

“It takes money,” the report says. “It takes time.”

Contrary to the double-digit growth year-over-year, supply chain demand is “likely” to remain stagnant or possibly diminish this year because of “lingering” uncertainties in both U.S. and global markets. GDP growth was a modest 3.1% worldwide last year, according to the International Monetary Fund, which forecasts 2.9% growth this year.

The report says the era of building supply chains solely around cost-reduction considerations is over. Rather, a new value has taken hold—resilience. But the best ways to achieve that resilience are not always obvious.

“They often involved trade-offs among core priorities such as speed, service, optionality, and savings,” the report says. “These calculations are only becoming more complex and nuanced with time.”

While consumers are continuing to return to stores, e-commerce sales are not slowing down. Last year, the U.S. e-commerce market grew by 8%, to $1.03 trillion from $871 billion in 2022. It is now 14.5% of the entire U.S. retail market.

“As the logistics sector moves forward from years of supply chain challenges and bottlenecks, our report shows that now is the time to begin thinking seriously and proactively when it comes to building strategic capacity,” noted Balika Sonthalia, senior partner at Kearney and co-author of the 2023 State of Logistics Report.

Taken by mode, the trucking industry remains the engine that drives the U.S. logistics market. Here’s a modal summary of how U.S. business logistics costs rose by 19.6% between 2021 and 2022:

• Trucking costs rose to $896 billion, up 6.1% YoY and 29.3% from 2020. Full truckload was the largest sector, at $403.8 billion, up 6.2% YoY and 28.8% from 2020.
• Rail costs were $99.2 billion, up 17.6% YoY and 33.1% from 2020. While rate hikes boosted railroads’ income and revenue, rising costs undermined bottom lines. The sector “also suffered from service-related issues, including increased terminal dwell, congestion, lagging network speeds, and some high-profile derailments,” the report said.
• Parcel rose to $217 billion, up just 4.7% YoY and 20.1% from 2022. “Explosive growth in e-commerce at the height of the pandemic has returned to pre-Covid levels as shoppers returned to stores,” the report said, hinting at possible implications down the road for parcel giants UPS and FedEx.
• Air freight was flat with $66.8 billion in domestic revenue last year, barely above $65.7 billion in 2021. Worldwide air cargo revenue is projected at $150 billion this year, 25% below 2022’s levels. One bright spot is fuel costs declined 20% from April 2022.

Inventory and carrying costs associated with storage of goods zoomed last year, mostly because of higher interest rates. Financial costs of business inventory zoomed to $313 billion last year, up a whopping 123% from 2022. Product obsolescence and insurance costs more than doubled to hit $227 billion last year. Overall, inventory costs were $759 billion, up nearly 400% from 2022 levels

“In 2022, the market swung back sharply in shippers’ favor, a trend that has largely continued during the first half of 2023. Across all modes of transit, shipper demand and carrier capacity have rebalanced,” the report concludes. “Inventories are ample, and the quirky demand spikes of the quarantine era have leveled off for now.”

Savvy shippers are advised to fine-tune their logistics strategies now. What has worked to survive the pandemic-era years may no longer be the best approach now, the report says.

“The 2023 ‘shippers’ market will come to an end in Q4 2023–Q1 2024 and no shipper should be caught off guard unless they have ignored the needs and opportunity to improve their capabilities and their ‘shipper of choice’ behaviors,” Rob Haddock, who works in transportation strategy for Coca-Cola North America, says in the SoL report.