Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The tailwind of low inventory carrying costs that U.S. businesses have enjoyed in recent years came to an end in 2015, and carrying costs are likely to prove a tougher challenge should the cost of money become dearer, according to the 27th annual "State of Logistics Report." The report was written by the consulting firm A.T. Kearney for the Council of Supply Chain Management Professionals (CSCMP) and is presented by Penske Logistics.
According to the report, released today in Washington, D.C., inventory carrying costs in 2015 rose 5.1 percent over the year-earlier period, paced by a 7.4-percent increase in the inventory's "financial cost." The financial cost was derived by multiplying the value of a company's business inventory by the average cost of capital it has borrowed to finance the inventory.
Storage costs, which were included in the total inventory calculation, rose 2.5 percent year-over-year, according to the report. The cost of what the report classifies as "other" factors, including inventory obsolescence, insurance, and handling, rose 5.1 percent year-over-year.
Following the U.S. Federal Reserve's moves to cut its benchmark federal funds rate (an overnight interbank lending rate) amid the 2007-08 financial crisis and subsequent recession, inventory carrying costs have sat at historic lows. From 2010 to 2014, capital costs grew by just 0.9 percent, compounded annually, the report concluded. By contrast, storage costs rose 4.7 percent a year, compounded annually.
In December, the Fed raised the benchmark rate from between near zero and 0.25 percent to between 0.25 and 0.50 percent, its first increase in nearly 10 years. The central bank said at the time it was considering several rate increases during 2016, but subpar economic growth in the United States and abroad since then has led policymakers to rethink that position.
From 2010 to 2014, a period generally associated with U.S. economic growth, inventories rose 5 percent a year as businesses restocked in the hope of increased demand, and mega-fulfillment centers were erected to accommodate what would become a multiyear surge in e-commerce traffic. Though inventory levels flattened in 2015—rising just 0.25 percent—the cost of capital did not, the report concluded.
Businesses today have costlier inventory loads to finance than at any time in years. In 2009, inventory value stood at $1.93 trillion. At the end of 2015, it stood at $2.51 trillion, according to the report's data.
The nation's inventory-to-sales ratio, which in the retail trade measures the value of inventories relative to final sales, has been climbing steadily for years, resulting in a protracted inventory bloat. Despite concerns over rising inventory levels and higher borrowing costs, the report's authors do not forecast a general recession. Rather, they say the current trends—notably, the dramatic slowdown in inventory growth last year—represent an "inventory correction." They also expect a rebound in freight volumes and revenues as 2016 progresses.
All told, it cost $1.4 trillion to maintain the U.S. business logistics system in 2015. That equated to 7.85 percent of last year's gross domestic product (GDP) of more than $17 trillion. Logistics costs rose 2.6 percent year-over-year, a decline from the 4.6 percent compounded annual growth rate (CAGR) from 2010 to 2014. The gains during that period were mostly fueled by 5.5 percent annualized growth in transport costs, the report said. However, transport costs in 2015 rose just 1.3 percent year-over-year, as declining fuel surcharges triggered by the rapid drop in oil prices depressed carrier revenue.
Logistics costs as a percentage of GDP, historically one of the report's most often-quoted data points, was just six basis points below last year's number, indicating that the system was operating in only a marginally more efficient manner than the year before, according to the report. In the early 1980s, long before the impact of transport deregulation was fully felt, logistics costs accounted for about 15 percent of GDP. The dramatic increase in transportation and logistics efficiency during the last 35 years has been an overlooked factor in the success of the U.S. economy during much of that period.
Transport revenue by mode diverged considerably in 2015, according to the report. Less-than-truckload (LTL) and parcel revenues rose 7 and 8 percent respectively, as both modes benefited from increased demand for e-commerce-related transactions. However, truckload revenue rose just 3 percent, intermodal revenue rose 2 percent, and airfreight and water revenues—which include import, export, and domestic waterborne traffic—increased 2.1 percent. Rail carload revenues, hurt by a sharp decline in coal demand, fell 12 percent, while pipeline revenues, hampered by lower crude oil prices, fell 11.8 percent, according to the report.
The divergence in modal revenue is a harbinger of long-term change, according to the report's authors. A profound change in buying habits has now put American consumers "at the wheel" when it comes to influencing U.S. transport costs, rather than traditional industrial standbys like energy. This change may be permanent, the authors said.
The "State of Logistics Report" was prepared by A.T. Kearney in partnership with CSCMP and other stakeholders. This is Kearney's first attempt at the report, which was launched by the consultant Robert V. Delaney and was continued by his associate, Rosalyn Wilson, after Delaney's death in 2004.
Editor's note: Go here to watch a video of the June 21 "State of Logistics Report" presentation at the National Press Club in Washington, D.C. A video of the panel discussion that followed the report's release is available here.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills 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.