If American transportation and logistics experts got the feeling the past year that the overall U.S. business logistics pie was shrinking, they were correct.
For the first time in six years, total spending on U.S. logistics dropped to $1.3 trillion last year, a decrease of $49 billion from 2007. That’s the gist of the 20th Annual “State of Logistics Report” released by the Council of Supply Chain Management Professionals (CSCMP) on Wednesday.
The annual respected benchmark report revealed the financial damage done to the sector by the ongoing recession. After rising by more than 50 percent the previous five years, business logistics costs fell to 9.4 percent of U.S. Gross Domestic Product last year. That is down from 10.1 percent in 2007. By way of comparison, that figure was 12.3 percent of GDP in 1985.
Transportation costs rose 2 percent, but that was not enough to offset the 13.2 percent decline in inventory carrying costs, primarily due to record-low interest rates last year. Transportation ($872 billion) now accounts for 6.1 percent of nominal GDP while inventory carrying costs ($420 billion) account for 2.9 percent of GDP.
Trucking, which accounts for 78 percent of transport by revenue and half of all business logistics cost, was particularly hard hit, rising just 1.3 percent compared with 4.4 percent for the other modes (rail, barge, air cargo, oil pipelines and forwarders).
For shippers, this has resulted in bargain transport rates, especially in trucking and ocean transport, according to Rosalyn Wilson, the long-time author of the SoL report.
“Abundant capacity, particularly in trucking and ocean shipping, push rates down (last year), often below costs,” Wilson said. “Many companies have not survived the prolonged downturn. Many more will not survive the upcoming months as we continue to ride out the recession.”
As a result of the shakeout—more than 3,000 motor carriers ceased operations last year, taking out approximately 7 percent of truck capacity—supply chains are being redefined and processes changing, Wilson said.
“The industry will emerge more efficient and resilient,” Wilson predicted.
Nevertheless, Wilson added, recovery will be a “longer and more difficult journey” for the logistics industry as it awaits meaningful economic recovery, which, Wilson said, will not come quickly.
“It is becoming more apparent that we will see an end to the decline by the end of this year but not a quick recovery,” she said.
One indicator of that is the sharp, record rise in inventory-to-sales ratios, which Wilson called an “unwelcome sign” of a slow recovery. Even with historic inventory reduction rates, the inventory-to-sales ratio skyrocketed from a low last June of 1.25 to 1.46 by December. That is the swiftest rise in that benchmark since 1982. And Wilson said it occurred across the entire distribution chain—wholesale, manufacturing, and retail.
Read the rest of the Supply Chain Management Review article here.
