State of the industry report sees a “steep grade ahead” with carriers in control as transportation demand outstrips supply.
Business logistics costs in the United States last year were 6.2 percent higher than in 2016, according to the 29th edition of the State of Logistics Report published by the Council of Supply Chain Management Professionals (CSCMP).
“The demand-supply balance shifted much more dramatically this year when compared to last year,” explained Sean Monahan, a partner at the management consulting firm A.T. Kearney and co-author of the report. “In 2015 it was a dark story if you were a carrier. There was a lot of excess capacity in the marketplace. We saw that starting to turn around in 2016 and continued to accelerate into 2017.”
The report said it sees a “steep grade ahead. Carriers are in control as demand outstrips supply, while shippers try to ‘create capacity’ by improving efficiency wherever possible.
“The pace of spending increases became pronounced especially in Q4 of 2017, with the main drivers being a robust economic climate with growing demand, strong job market, rising wages, and while nothing new to the industry, significantly intensifying driver shortages,” said the report.
What the reports calls “United States Business Logistics Cost” (USBLC) amounted to about $1.15 trillion or 7.7 percent of nominal gross domestic product in 2017, up from 7.6 percent of nominal GDP in 2016, according to an analysis by A.T. Kearney.
It says the costs of shipping goods and services is rising, as seen by increased capacity rates, which is leading to higher supply chain costs for corporations, and the consolidation of smaller trucking and logistics companies that cannot keep pace.
The continued growth of e-commerce pushed parcel shipment volume up by 7 percent in 2017, to nearly $100 billion and volumes are forecast to rise a similar levels for the next few years.
CSCMP noted, “This has a strong effect on the supply chain, in the areas of more visibility for both the corporation and the customer; the need for more warehousing which in many cases will be smaller and closer to large population centers; and designing more responsive and flexible logistics networks, just to name a few.”
A continuing truck driver shortage in the transportation industry could result in slower package delivery times for Americans, who are increasingly ordering goods and services online. Trucks transport 70 percent of consumer goods in the United States.
To calculate USBLC, the report looks at transportation costs for all modes — road, rail, water, air, even pipeline — as well as inventory-carrying costs and support activities for shippers and the administrative costs that shippers incur. It found costs were rising in all those areas.
“Transportation led the way, with a 7 percent overall increase, with costs running well above inflation for every shipping mode except waterborne freight, (which rose just 1.1 percent last year). Private or dedicated fleet and rail saw the biggest hikes as shippers scrambled to lock up capacity,” the report noted, adding it is a trend A.T. Kearney has reflected in surveys it conducts.
The report noted that “strong demand and higher interest rates also lifted the cost of carrying inventory last year. Inventory financing expenses rose 5 percent as average capital costs increased 6 basis points and storage expenditures increased 4.2 percent. These figures mark a sharp acceleration from 0.7 percent inventory cost growth in 2016.”
The report said, “Much of the action in logistics last year revolved around e-commerce, which produced another year of double-digit volume growth and rising expectations. Amazon continues to raise the bar, conditioning shoppers to expect same-day delivery while forcing rivals and logistics providers to play catch-up.”
It added, “Carriers and warehouse operators that benefit from rising e-commerce shipments are investing
heavily in reconfiguring their networks to meet tighter delivery requirements.”
But the report says not to count traditional retailers out for the count: “Before long, infrastructure costs may become a drag on e-commerce growth and a potential advantage for brick-and-mortar retailers whose stores can double as delivery nodes.”
The report said looking ahead it expects “five trends to shape the future of logistics: robust macroeconomic growth rooted in a strong labor market and recent tax cuts will boost demand for logistics, rising interest rates; a tighter labor market, and higher fuel prices will raise logistics costs; robust demand patterns and new competitors will challenge old business models; a fully digital, connected and flexible supply chain optimized for e-commerce and last mile, same-day delivery will become essential; the next generation supply chain will improve fulfillment and drive efficiency through technologies such as big data and predictive analytics, artificial intelligence, robotics, crowdsourcing, and electric and autonomous vehicles.”
Logistics costs rose 6.2 percent in 2017
