A "banner year." The Council of Supply Chain Management Professionals' 25th annual "State of Logistics Report," sponsored by Penske Logistics, is overflowing with data points. But it is those two words—used by report author Rosalyn Wilson to describe the outlook for 2014—that are likely to get the most attention. That's because Wilson has been anything but a wild-eyed optimist about the economy and the logistics business since the Great Recession ended in 2009.

Wilson's bullishness about 2014 seems out of sync with her findings that 2013's results were no better or worse than those for the previous less-than-stellar years. Transportation revenues—measured as "costs" in the report—rose just 2 percent year over year. Trucking revenues gained only 1.6 percent, making 2013 one of the weakest years for the industry in recent history, the report said. Intercity truck revenues rose 1.8 percent, while the local delivery segment gained 1.2 percent. Truck tonnage gained 6.1 percent year-over-year, a misleading figure because it is skewed by the enormous number of shipments of heavy sand used to support hydraulic fracturing, or fracking, operations in the Northern Plains, Texas, and Pennsylvania.

Truck shippers continued in 2013 to resist rate increases, according to the report. Although carriers are operating at or near full capacity, shippers believe they have enough service options to hold the line on rate hikes, the report said. Rates were relatively flat, except for periods in the spot market when capacity was scarce. The competitive truck-rate market had a bleed-over effect on rail intermodal: Though volumes rose 10.6 percent, strong price competition from truckers dampened intermodal rate growth, according to the report. Ocean volumes rose 4.5 percent, while domestic and international airfreight volumes each increased by less than 1 percent.

SHIPMENTS "SPRING" FORWARD
What happened during the March-May time frame? Not surprisingly, the industry struggled for much of the first quarter due to bad weather across much of the country. But as the elements abated in March, the economy and industry began to revive. Volumes during that month rose 10 percent year over year, partly because businesses that had held back due to the weather and the normal post-holiday malaise got back in gear.

The big surprise came in April. Based on the pattern of shipment activity over the past four years, April should have seen a contraction. Instead, business took off. Freight payments rose to their highest point in 15 years. Shipment volumes hit their highest levels since June 2011, according to the report.

The momentum continued in May. By the time the month ended, anyone who was moving freight for a living was sitting pretty. Shipments through the first five months were up 13.1 percent over 2013 levels. Payments jumped 11 percent during that span. The surges in March, April, and May led to the strongest freight demand since the recession ended, the report said. More tellingly—given that she generally does not go out on a limb unless she's sure 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 percentage 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-related 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.