20th annual State of Logistics Report highlights weakness in '08, shaky outlook for '09

The 20th Annual "State of Logistics Report" released June 17 by the Council of Supply Chain Management Professionals painted a picture of a shaky U.S. economy and a logistics industry that will require an economic rebound in the United States to regain its strength.

The eagerly awaited report found that total U.S. logistics costs in 2008 slid to $1.34 trillion from $1.4 trillion in 2007, the first decline since 2003. Logistics costs as a percentage of U.S. gross domestic product dropped to 9.4 percent from 10.1 percent in 2007. The 2008 results were attributable to a 13.0-percent plunge in inventory carrying costs as interest rates declined precipitously, the report found.

The drop in the cost of capital may have been the only bright spot in the 2008 report. The average investment in all business inventories fell by $45 billion in 2008 as the value of existing inventory declined and as companies struggling with weak demand in the year's second half liquidated stock on hand rather than replenish inventories.

The combined impact of falling inventories and declining interest rates led to a 54-percent drop in the interest component of the report's calculation of inventory carrying costs.

Warehousing costs rose 9.5 percent year over year, while warehousemen reported a significant decline in inventory turns as goods spent more time in warehouses, the report said. By the end of 2008, warehousing rates were declining for the first time in three years, while vacancy rates were rising due to slowing demand, the report said.

No bottom in sight
In an interview with DC VELOCITY prior to the report's release, Rosalyn Wilson, the report's author, said she doesn't believe the U.S. economy "has hit bottom yet." She added that supply chain activity won't return to its historic norms until employment and the housing market stabilize and consumers feel more confident about their financial situations.

Wilson said that "we are seeing a permanent change in ... spending and consumption patterns" as Americans become more frugal in their buying habits. This will result in a painfully slow economic rebound and have a profound impact on the supply chain for years to come, she said.

Demand for trucking, which moves nearly 80 percent of the nation's freight, remains very weak and may not pick up appreciably until well into 2010, Wilson said. Freight rates will initially remain stable as volumes improve, she said. However, the significant reductions in trucking capacity during the past two to three years will lead to an upward spike in rates once the recovery takes hold, she said.