When the results of the State of Logistics Report were released earlier this summer, the report's author, Rosalyn Wilson, announced that logistics costs as a percentage of GDP had risen in 2007, climbing above the 10-percent mark for the first time since 2000.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
For 19 years now, The State of Logistics Report has provided an annual snapshot of logistics costs across the U.S. economy. While some critics have disputed the methodology behind it, the report has become the mostly widely cited barometer of those costs. For most of those years, it has shown a relatively steady trend—the decline of logistics costs as a percentage of the U.S. gross domestic product (GDP).
Not so this year. When she unveiled the latest study's results earlier this summer, the report's author, Rosalyn Wilson, announced that logistics costs as a percentage of GDP had risen in 2007, climbing above the 10-percent mark for the first time since 2000. During a press conference in Washington, D.C., Wilson also noted that total U.S. logistics costs for 2007 totaled $1.4 trillion, an increase of $91 billion over 2006, the fourth year in a row the number has hit a record level.
In her report, which is sponsored by the Council of Supply Chain Management Professionals (CSCMP), Wilson cited a number of reasons for the rise in logistics costs. Not surprisingly, skyrocketing transportation expenses made the list. She also cited higher inventory carrying costs—a result of excess inventory in the system as consumer spending slowed. In fact, she said, inventory carrying costs grew 9.0 percent last year, faster than transportation costs, which were up 5.9 percent. "Costs were up for virtually every component of business logistics," she added.
Wilson, who subtitled her report "Surviving the Slump," does not expect an immediate turnaround. The Federal Reserve insists that the country has not yet entered a recession, she said, "but, in my opinion, neither have we entered a recovery." Wilson added that she believes the remainder of 2008 will bring more of the same, with a slow recovery to begin next year.
A glass half full?
Despite the generally gloomy news in the report, a panel of shippers and carriers who discussed the findings after the presentation sounded relatively upbeat.
John Gray, senior vice president for policy and economics for the Association of American Railroads, said, "I reject the idea that this is a frightening time. There have been few times that it has been more exciting to be in the transportation business." While he acknowledged that the railroads, like other modes, have had to contend with rising fuel costs, he nevertheless insisted that he foresees a strong future. "This is a time of unprecedented opportunity," he said.
Kevin Smith, senior vice president of supply chain and logistics for drugstore chain CVS, likewise took issue with the gloomy prognostications. "In talking to my colleagues, we have a much brighter outlook," he said. Smith wasn't the only shipper to express those sentiments. Despite the collapse of the housing market, Brian Hancock, vice president of supply chain for Whirlpool Corp., whose appliance sales are tied to that market, also said he was confident about the future.
But fuel costs, and what they mean to supply chains, were clearly on the minds of the panelists. Rick Jackson, chief operating officer for Victoria's Secret Direct, said, "Our supply chain is built around a cost-service proposition, and speed is a very important part of that proposition." If fuel prices continue to climb, he said, his company may be forced to reassess the cost/service trade-offs, and perhaps "make some paradigm-changing decisions about what the service model ought to be and what the speed model ought to be."
Cliff Otto, president of Saddle Creek Corp., a third-party logistics service company, added that he was already seeing evidence of some supply chain realignments. Soaring fuel and inventory costs, he said, are causing shippers to reexamine their distribution networks and number of distribution points to determine the most cost-effective way to serve customers.
Jackson said he is concerned in particular about the future of the truckload market, which has lost a significant amount of capacity in the past two years. Historically, capacity in that market ramps up quickly during economic recoveries. That may have changed. "As capacity is leaving the market, so have the assets," he said. "That hasn't happened in the past."
Wilson noted in her report that foreign buyers are purchasing many of the trucks sidelined by the downturn, permanently removing them from the United States.
The panel's trucking representative, Jim O'Neal, president of O&S Trucking, agreed that shippers may be in for a tough time when business picks up, which he thinks will happen sooner rather than later. He said he believes the economy is "on the precipice of a significant recovery." When the turnaround comes, he warned, shippers could face a severe shortage of trucking capacity.
For the present, though, Wilson noted, shippers have the upper hand in price negotiations with carriers.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.