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What a difference a year makes.
The Council of Supply Chain Management Professionals (CSCMP) is out with its 2018 State of Logistics Report, looking at 2017 data.
The headline news: after declining in 2016 in both absolute and relative terms, logistics cost were back on the march again in 2017 – to no one’s surprise. What the report started calling last year United States Business Logistics Costs (USBLC) were up 6.2%, driven by especially sharp increases in Q4 – which have obviously carried on into 2018.
But with healthy US nominal GDP growth last year of 2.9%, even with that rise in total logistics spend, US logistics costs as a percent of GDP inched barely higher, to 7.7% versus a revised 7.6% in 2016, as shown in the chart below.
To get to this number, you take the number for US logistics costs – from trucking to pipelines – and divide it by annual nominal (not real) GDP numbers. Voila, logistics costs as a percent of GDP emerges. The methodology must use nominal not real GDP as the denominator because the costs for the year are compiled in nominal terms.
The general consensus is that metric will rise again here in 2018, perhaps sharply. As a note, the Cass Linehaul Index, which measures US truckload rates, was up an incredible 9% in May – its largest year-over-year monthly increase since the index was launched in January 2005. The report notes that spot rates in the US dry van market were up a very strong 27% last year, most of that coming in the second half of the year, and again largely continuing here in 2018.
The peak year in the past dozen was 2007, when logistics costs hit 8.59% of GDP, close to where it was in 2008 (8.5%) before taking a steep drop in the recession year of 2009 to 7.4%, from there actually staying in a fairly tight band.
This now the third report produced by consulting firm AT Kearney since it took over authorship after a competitive bidding process by CSCMP several years ago. The lead author is Kearney’s capable Sean Monahan along with a number of his colleagues, but a number of contributors from industry also called out (e.g., Marc Althen of Peske Logistics, Ravi Shanker of Morgan Stanley, Brent Hutto of Truckstop.com and several others.)
This is actually the 29th edition of the State of Logistics report, which was launched in 1988 by the late Bob Delaney and sponsored by his company, Cass Information Systems. Somewhere along the way, CSCMP took over the sponsorship.
Again this year, Penske Logistics funded the report development, and the results were as usual released at a major media event at the National Press Club in Washington DC on Tuesday.
The report this year is titled “Steep Grade Ahead,” using a trucking term to capture the current scenario in which pressure on transport costs and capacities are occurring while trade tensions may ultimately impact economic growth and freight flows. Last year, amid more uncertainty, the report identified four different potential logistics scenarios, from bullish to pessimistic. This year, there is just one, and it is uphill.
“Shippers needing to control logistics costs need creative thinking and innovation, and that means opportunities for start-ups and news technologies offering novel solutions to transportation challenges,” the report nicely states.
The total cost of US logistics was estimated at $1.494.7 trillion for 2017, up 6.2% from 2016, a year in which absolute logistics costs actually fell. The average annual growth in logistics costs – again including inflation – is 3.2% over the past five years.
Underneath the overall logistics cost number, transportation costs – the largest single component of USBLC at 64.6% of the total – was up by 7.0% in absolute terms in 2017. The second component, inventory carrying costs (28.6% of the total), was up 4.6% last year under the report’s calculation, which includes the cost of warehousing but also the cost of capital (which drives the cost of holding inventory). That financing cost was up 5% versus 2016, and was a big driver in the increased cost of carrying inventory.
“Other” costs – always somewhat vague and mostly related to certain IT expenses and some services such as freight forwarding – were up 4.9%, though this is by far the smallest of the three main categories at just 6.7% of the total number.
You can find the full breakdown in the chart below:
Within transportation, trucking-related spend (including private fleets but excluding parcel) comprise 66.4% of total transport costs and 42.9% of total logistics spend – both numbers virtually identical to last year’s percentages.
Notable, spend on dedicated trucking rose a robust 9.5% in 2017, as shippers looked to lock up capacity in this freight environment.
Parcel shipping costs were estimated at $99 billion in total, up 7% over 2016. That represented 10.2% of transport costs (up from 9.6 in 2016) and 6.6% of total logistics spend. eCommerce obviously is driving total parcel costs up.
At $80.5 billion in 2017, rail comprises 8.3% of transportation spend – up from 8.0% last year. Rail was also 5.4% of the total logistics costs, up a bit from last year. But the US spent about $20 billion more in parcel shipping than it did in rail transport last year – interesting.
In terms of growth in spending by these various categories, the 5-year average annual growth rate in costs by mode or cost category are as follows, according to the report:
Truckload: 4.8%
LTL: -2.1%
Private/dedicated fleet: 6.8%
Trucking combined: 4.8%
Parcel: 7.9%
Intermodal: 2.6%
Rail total: -0.3%
Air freight: 1.5%
Waterways: -0.4%
Warehousing: 3.1%
Inventory carrying: -1.0%
With overall logistics costs rising 3.2% per year over the past five years, comparing the rise in any specific area versus that 3.2% overall number will indicate whether it is gaining or losing share of total spend.
Trucking, for example, is still gaining in share of spend versus rail, while truckload and parcel are gaining share versus LTL. I am very surprised intermodal costs have been averaging less than overall logistics spend growth.
Warehousing cost are running about equal with total logistics spend over the past 5 years, despite rapidly rising costs for DC space in most markets (up on average 5.9% for new contracts in 2017). Increased efficiency must be playing some role there. The US inventory-to-sales ratio rose sharply from 2014-2016, but has since been trending down, and is now back at about 2015 levels.
The report has a lot more detail on each mode and cost bucket, as well as the overall economic and logistics environment, which I don’t have room for here.
The report includes a special section on blockchain and the supply chain, noting that it is moving from buzzword to reality. That said, the report says “We expect steady but gradual uptake as industry players define a set of common standards, revamp logistics technology for blockchain, and win buy-in through successful pilot programs.”
My bottom line view: This is clearly the best State of Logistics report yet by Kearney and CSCMP, and well, well worth a read. As I said last year, I wish they could find some way to get the report done earlier in the year. I understand the many challenges in making that happen – but believe it could be done, even if some data has to be revised later.
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