Logistics Expenses Drop 3.5%
This story appears in the June 22 print edition of Transport Topics.
WASHINGTON — The cost of moving and storing goods nationwide fell 3.5% last year, the first decline in logistics-related ex-penses in six years, despite 2% higher transportation expenses. Manufacturers and retailers slashed inventories and excess capacity limited the ability of freight carriers to raise prices, according to a new report.
The increase in transportation costs was more than offset by a steep drop in inventory carrying costs as interest rates fell and businesses kept fewer goods on hand, the report said. Overall, business logistics expenses declined by $49 billion to $1.34 trillion in 2008 from a record $1.39 trillion in 2007.
“The recession has caused tre-mendous strains on the global economy,” said Rosalyn Wilson, author of the annual State of Logistics Report issued by the Council of Supply Chain Management Professionals. “Abundant capacity, particularly in trucking and ocean shipping, pushed rates down, often below costs.”
Wilson said trucking, which accounted for half of all spending on business logistics, has been hard hit by the loss of freight volume and could have difficulty meeting future demand for freight-hauling.
“Capacity is permanently leaving the industry as firms exit the market and sell their equipment in foreign markets,” Wilson said. “Investment in new capacity has dropped off, and we can expect some very tight capacity restraints when the economy turns around.”
Wilson said that she sees an end to the economic downturn by the end of this year but “not a quick recovery.”
A gradual recovery, however, would give trucking companies more time to “grow” capacity, she said.
Wilson advised companies to use the current downturn as an opportunity to negotiate with carriers for “better terms or guaranteed capacity.”
“Relationships will be the key to survival in the future,” she said. “Carriers have already begun expressing the sentiment that when capacity gets tight, and it will, they will remember customers who worked with them through the recession.”
Money spent on trucking in 2008 rose 1.3% to $680 billion, while spending on railroads, air freight carriers and forwarders, ocean and barge lines and oil pipelines in-creased 4.6% to $184 billion.
Overall, business-logistics expenses amounted to 9.4% of U.S. gross domestic product in 2008, down from 10.1% in 2007.
Robert Delaney, then an executive with a freight payment firm, introduced the State of Logistics in 1989 as a means of tracking the efficiency of transportation following deregulation of trucking and rail industries.
The ratio of logistics expenses to gross domestic product has declined steadily through the years and reached a record low of 8.8% of GDP in 2003.
Wilson has worked on the report since 1994 and took over full responsibility after Delaney’s death in 2004.
CSCMP President Rick Blasgen said the report gives “a big-picture view” of the performance of supply chain processes in the United States.
“This research details ways that company leaders can capitalize on the recovery when it occurs, ” Blasgen said, “such as restructuring their distribution networks to maximize efficiency and minimize miles, investing in technologies to facilitate ‘green’ transportation, and improving data flows to increase visibility and enhance productivity.”
