State of Logistics Report: U.S. logistics costs hit $1.2 trillion in 2010

Despite the ongoing recession in the United States, business logistics costs in 2010 reached $1.2 trillion, an increase of $114 billion from 2009. That's the key takeaway of the latest "State of Logistics Report," which was released today in Washington, D.C. The report, which quantifies the value of logistics to the U.S. economy, also showed that logistics costs accounted for 8.3 percent of the nation's gross domestic product (GDP) in 2010, compared with 7.8 percent in recession-wracked 2009.

The report, which was produced for the Council of Supply Chain Management Professionals (CSCMP) and sponsored by Penske Logistics, is now in its 22nd year of publication. The annual research provides an accounting of the nation's total logistics bill and tracks trends in transportation costs, inventory carrying costs, shipper-related costs, and expenses for logistics administration.

Transportation costs last year hit $768 billion, up 10.3 percent from 2009 levels, as higher demand triggered increases in freight rates and rising fuel prices resulted in higher fuel surcharges. Trucking costs, which accounted for 78 percent of the transportation cost pie, amounted to $592 billion. However, trucking costs only rose 9.3 percent last year, compared with an average increase of 15.4 percent for other modes.

Inventory carrying costs totaled $396 billion last year, up 10.3 percent from 2009 levels. The increase was largely driven by rising expenses for taxes and obsolescence, depreciation, and insurance, which collectively amounted to $280 billion. As defined in the report, inventory carrying costs include interest on overall inventory held in storage; warehousing expenses; taxes; and obsolescence, depreciation, and insurance.

Value for overall business inventory in the U.S. economy was pegged at $2.064 trillion. Given the low costs for commercial loans, interest charges on business inventory accounted for only $4 billion. Warehousing costs fell 6 percent in 2010 to $112 billion.

As for what all this indicates for the future, Rosalyn Wilson, senior business analyst at Vienna, Va.-based Delcan Corp. and author of the report, said the "underlying pieces are not falling into place to support anything more than weak growth" for the rest of 2011. Wilson also predicted that shippers could see "very significant rate hikes" in trucking by late 2011 unless "freight volumes continue to soften." She said shippers would need to cultivate stronger relationships with truckers to meet their freight needs in the face of tightening capacity.

Wilson said she expected "mixed results" for the rail sector, with carloadings of bulk commodities possibly declining. Although the air-cargo industry started strong in the first quarter of 2011, shipments have slowed recently, she said. Rate increases in the ocean freight industry during 2010 appear to be reversing due to increased competition and moderating growth. Wilson said the freight market will continue to be "fraught with challenges for shippers and carriers alike" as a slowing economy will likely result in fewer shipments.

Despite Wilson's downbeat assessment, industry experts participating on a panel commenting on the report were somewhat more upbeat. "These types of challenges present opportunities," said Joe Gallick, senior vice president of sales at Penske Logistics, a contract distribution services provider. "We have been admirably resilient, absorbing higher energy costs."

In an uncertain economy, retailers are taking steps to control their inventories, said Jeffrey Pilof, group vice president at Macy's Logistics and Operations division. Along with taking more frequent deliveries of smaller shipments from its suppliers, Macy's has launched an initiative to leverage its inventory across all retail channels.

Pilof also said Macy's is piloting the use of radio-frequency identification tags on items to streamline the replenishment of store shelves.