newsworthy
it can’t be cut down—Wilson forecast that 2014 would
be the best year for freight since 2006, the industry’s last
good year before a protracted recession took hold.
Wilson’s projections must be taken with a grain of hindsight. Other years in the post-recession era have enjoyed
strong periods only to fade and fall flat. Even in 2013, a
strong showing through the year’s middle was spoiled by a
weak fourth quarter that put a crimp in the overall results.
MONEY? WE’RE GIVING IT AWAY!
The story of 2013 reflects the demand for inventory and the
absurdly low costs of carrying it. U.S. warehousing costs
spiked as retailers incented by low interest rates bulked up
on products ahead of a hoped-for fourth-quarter burst that
never came, the report said. Warehousing expenses climbed
5. 6 percent over 2012 levels as rising inventories sucked
up available capacity. Demand for space during last year’s
fourth quarter reached the highest level on record, according to the report. The U.S. industrial vacancy rate ended the
year at 8 percent, down from 8. 9 percent in 2012.
Cheap money no doubt played a major role in inventory decisions, as businesses saw little economic penalty in
ordering and warehousing products. The Federal Reserve’s
annualized rate for commercial paper—unsecured promissory notes with a fixed maturity of no more than 270
days—fell to 0.09 percent in 2013 from 0.11 percent in
2012. As of the end of May, the Fed’s commercial paper rate
had hit 0.08 percent. The “interest” category of the report
fell 22. 6 percent in 2013, an astonishing decline in light of
already rock-bottom borrowing costs. Interest rate declines
offset the cost of taking on more inventory, leaving overall carrying costs up just 2. 8 percent over 2012 levels, the
report said. However, the inventory strategy backfired when
a disappointing holiday period left manufacturers with too
much overhang, Wilson said.
Retail inventories increased 6. 2 percent year over year,
and inventory levels rose sequentially throughout 2013, the
report said. Wholesale and manufacturing inventories rose
by only 2. 7 percent and 2. 1 percent, respectively, indicating
the upstream supply chain flow succeeded in keeping stocks
low until late in the year.
The cushion of ultra-low interest rates was apparent in
the report’s analysis; if the annualized 2007 interest rate
of 5.07 percent had prevailed during 2013, total logistics
costs would have increased by $128 billion, Wilson found.
All told, U.S. logistics costs reached $1.39 trillion, up $31
billion, or 2. 3 percent, from 2012 levels. Costs in 2012
increased by 3. 4 percent over 2011 levels.
Total logistics costs in 2013 as a percentage of gross
domestic product (GDP) declined to 8. 2 percent, according
to the report. For the previous two years, costs as a percent-
age of GDP—a key gauge of the supply chain’s efficiency in
moving U.S. output—had been stuck at 8. 5 percent.
In years past, a fall in the ratio was hailed as a sign the
supply chain was becoming ever more efficient. That is
no longer the case. Some of the year-over-year decline in
2013 was attributed to a 1.9-percent drop in “
shipper-re-lated costs” caused by companies increasing their supply
chain productivity. Wilson said, however, that much of the
decline reflected less freight spending and, by extension, less
demand for logistics products and services.
STRONG DOMESTIC 3PL REVENUES
Revenues for the third-party logistics (3PL) sector rose 3. 2
percent in 2013, down from a 5.9-percent year-over-year
gain in 2012. Most of the softness was in the international
sector, as a subpar global economic recovery and shippers’
reluctance to commit to new business restrained results, the
report said.
By contrast, the domestic 3PL market showed strong
demand due to shippers increasingly turning to intermediaries to help optimize their supply chains across a broad
front. Marc Althen, president of Penske Logistics, said the
company last year experienced strong shipper demand for
all of its services.
—Mark Solomon
go figure …
28%
Kansas City Southern’s estimated percentage of 2014
revenue to be allocated to capital expenditures, well
above the rail industry’s average of 16 to 18 percent.
Much of that investment will go toward improving
KCS’ U.S-Mexico network.
SOURCE: COMPANY DATA
Oversight
In the article “What if everyone used fleet telematics?” in the June issue, the potential savings in fuel
and payroll costs cited in the first paragraph were
incorrectly said to apply if all commercial fleets in the
United States and Canada implemented fleet optimization software. It should have said that those savings
potentially could be achieved if commercial fleets in
the United States and Canada that are currently using
fleet optimization software achieved optimal results
from that software.
