newsworthy
THE COST OF OPERATING THE U.S. BUSINESS LOGIStics system in 2014 rose 3. 1 percent to slightly less than
$1.45 trillion, equal to about 8. 3 percent of the nation’s
gross domestic product (GDP), according to the 26th
annual “State of Logistics Report,” released June 23 in
Washington, D.C. The report is issued by the Council of
Supply Chain Management Professionals (CSCMP) and
presented by third-party logistics service provider Penske
Logistics.
The report said that 2014 was the best year for U.S. logistics since the start of the Great Recession in 2007. Barring
any unexpected events, 2015 should also show strong
growth despite a weak first quarter caused by inclement
weather, a strong dollar that curbed export activity, and
problems caused by labor strife at West Coast ports, the
report predicted. “The U.S. economy is on fairly solid
ground” with unemployment falling, real net income and
household net worth inching up, low to moderate inflation,
and declining oil prices putting more money in Americans’
pocketbooks, wrote Rosalyn Wilson, the report’s author.
“We’re actually seeing some very sustained growth, in my
opinion,” she added in remarks during the press conference
where the report was released.
Logistics costs as a percentage of GDP, one of the report’s
most frequently cited data points, have stayed within a
range of 8. 2 to 8. 4 percent since 2010. However, Wilson,
in an e-mail interview prior to the report’s release, said
the current levels are likely unsustainable and the ratio will
eventually rise to 9 to 9. 5 percent as a significant tightening
of motor carrier capacity causes freight rates to climb. That
truck rates did not surge in 2014 was one of the biggest
surprises in the report, Wilson said in the interview.
While truck revenues rose 3 percent over 2013’s numbers, tonnage climbed 3. 5 percent, meaning that rates
remained relatively flat, according to the report. Trucking
costs—measured as carrier revenues—accounted for slightly less than half of the total expense of the nation’s logistics
system.
“Carriers seem to still be spooked by the lean years when
there was not enough freight to go around, and they are
... [reluctant] to pass up
freight even if [rates]
are negotiated down-
ward,” said Wilson, a
senior business ana-
lyst with Pasadena,
Calif.-based Parsons
Corp., an engineer-
ing and construc-
tion firm. She said
shippers succeeded last
year in whittling down pro-
posed rate increases from 6 to 8
percent to levels approaching 2 percent. But that practice
cannot continue indefinitely, especially as carrier capaci-
ty shrinks to extraordinary levels, Wilson said. “At some
point, rates have to rise, and I think we’ll see that by the end
of this year,” she said at the press conference.
When the pricing picture turns, it will likely be a quick
and sharp change, with a big carrier taking the lead and
others following suit, Wilson said in the interview. In her
report, she advised shippers to pay more attention to carriers’ capacity guarantees than to the rates they charge, and to
work with carriers to optimize their equipment utilization.
Shippers that do both stand the best chance of mitigating
2015 rate increases because carriers will be more willing to
keep rates steady if they know their equipment and drivers
are being turned faster and more efficiently, she said.
VIEW FROM THE TRENCHES
Speaking on a panel of logistics executives at the press
conference, Mary Long, vice president of logistics and
network planning for Ann Arbor, Mich.-based restaurant
chain Domino’s Pizza Inc., said Domino’s is trying to make
greater use of its private fleet for backhauls and has invested in additional equipment and drivers. Shawn E. Wattles,
director of supply chain logistics for Chicago-based Boeing
Co., said the aircraft manufacturing giant is also trying to
maximize private fleet use, although its fleet only operates
in Washington state, formerly the location of p. 16
“State of Logistics Report”:
U.S. business logistics costs hit
$1.45 trillion in 2014
