We use cookies to provide you with a better experience. By continuing to browse the site you are agreeing to our use of cookies in accordance with our Cookie Policy.
  • ::COVID-19 COVERAGE::
  • INDUSTRY PRESS ROOM
  • ABOUT
  • CONTACT
  • MEDIA FILE
  • Create Account
  • Sign In
  • Sign Out
  • My Account
Free Newsletters
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC.
    • Podcast
    • Blogs
      • Analytics & Big Data
      • Best Practices
      • Dispatches
      • Empowering Your Performance Edge
      • Logistics Problem Solving
      • One-Off Sound Off
      • Public Sector Logistics
      • Two Sides of the Logistics Coin
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2020
    • Upload Your Video
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC.
    • Podcast
    • Blogs
      • Analytics & Big Data
      • Best Practices
      • Dispatches
      • Empowering Your Performance Edge
      • Logistics Problem Solving
      • One-Off Sound Off
      • Public Sector Logistics
      • Two Sides of the Logistics Coin
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2020
    • Upload Your Video
Home » Booming economy drives U.S. business logistics costs up 11.4 percent
newsworthy

Booming economy drives U.S. business logistics costs up 11.4 percent

June 18, 2019
Susan K. Lacefield
No Comments
[Figure 1] U.S. Business Logistics Costs as a Percent of Nominal GDP
Enlarge

In the face of tight transportation capacity and rising freight rates, overall U.S. business logistics costs jumped 11.4 percent in 2018 to a total of $1.64 trillion, or 8.0 percent of the U.S.'s $20.5 trillion gross domestic product, according to the Council of Supply Chain Management Professional's 30th annual State of Logistics Report. (See Figure 1.)

[Figure 2] U.S. Business Logistics Costs Increased in 2018
Enlarge

The report, which was issued this morning at the National Press Club in Washington, D.C., is written by the global management consulting firm A.T. Kearney and sponsored by logistics service provider Penske Logistics. It found that all the components that make up U.S. business logistics costs—transportation costs, inventory carrying costs, and other administrative costs—rose in 2018. (See Figure 2.)

The report's findings echo the experience of many major companies, which have reported in their Securities and Exchange Commission (SEC) filings that they exceeded their supply chain budget spending in 2018.

The biggest increase occurred in the area of inventory carrying costs, as companies responded to trade tensions between the United States and China by building up their inventories before tariffs went into place. Inventory levels rose 4.6 percent year-over-year in 2018, and inventory carrying costs rose 14.8 percent. Meanwhile transportation costs jumped up 10.4 percent, with every mode experiencing an increase. Particularly big increases were seen in intermodal, which spiked up 28.7 percent, and in the private or dedicated fleet market, where costs rose 13.1 percent. The increase in these two modes was driven by shippers seeking alternatives to common carriers, which saw rising rates in the first half of the year, particularly in the spot market.

The report attributes the rising logistics costs to four factors:

  • The continuing growth in e-commerce sales (an increase of 14.2 percent over the previous year) has meant that many companies have had to redesign their supply chain networks. For example, the rise in urban fulfillment needs has led many companies to turn to smaller, more costly warehouses.
  • Existing truck fleets saw an extremely high utilization rate in 2018 due to growing demand. As a result, truck capacity was tight, and rates spiked.
  • Government regulations on driver "hours of service" forced many smaller trucking companies to cease operation, consolidate, or be acquired.
  • The low unemployment rate made it harder to attract and retain truck drivers and warehouse workers, causing companies to increase wages. In many cases, carriers and warehouse providers passed these costs on to their customers.

Cresting the hill

While the economy boomed in 2018, many economists anticipate that growth will soften in the later part of 2019. As a result, shippers can expect that transportation costs will ease somewhat in the upcoming year, according to the report. For example, trucking capacity started to catch up to demand in the second half of 2018, and freight rates have begun to slide back to "normal levels." The report also predicts that the air freight and ocean shipping sectors will not match the cost increases seen in 2019.

"[The logistics industry] has overcome a tough and exhausting year," said Michael Zimmerman, partner with A.T. Kearneyand co-author of the 2019 report. "Now, demand has softened, and growth is in doubt—but not to the point where a steep decline is visible, a context we summarize in the report's title, 'Cresting the Hill.'"

The authors predict that economic realities—particularly the tight labor market—will drive many companies to embrace new technologies and innovations in the upcoming years. They anticipate increases in automated trucks and warehouses and in vehicle electrification. In particular, the report emphasizes the positive impact that the rollout of the 5G mobile broadband and communications standard will have on the logistics industry. The new standard will enable faster download and transfer speeds, greater connectivity and device density, and greater energy efficiency. In the near-term, it will help reduce the cost of operations for existing information technology (IT) and increase visibility across the supply chain. In the long term, according to the report, 5G will enable large-scale deployments of emerging technologies such as the Internet of Things, robotics, artificial intelligence, drones, and real-time tracking.

The report also sounded an optimistic note on greater collaboration between shippers and carriers. The report says that more shippers are moving beyond having an adversarial relationship with their transportation providers and are instead embracing concepts such as shipper of choice programs, collaborative contracts, and asset-sharing models for better use of last-mile drivers and warehousing space. More shippers, carriers, and third-party logistics providers are also collaborating on supply chain network design.

Transportation Supply Chain Services Air Trucking Rail Maritime & Ocean Regulation/Government Intermodal Parcel & Postal Carriers Publications & Associations Business Management & Finance
KEYWORDS Council of Supply Chain Management Professionals Kearney Penske Logistics
  • Related Articles

    New index polls logistics managers to gauge U.S. economy's direction

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

    U.S. logistics system improved only modestly in 2011

Susanlacefield
Susan Lacefield has been working for supply chain publications since 1999. Before joining DC VELOCITY, she was an associate editor for Supply Chain Management Review and wrote for Logistics Management magazine. She holds a master's degree in English.

Recent Articles by Susan Lacefield

Six signs of the warehouse e-volution

Where it’s at

The state of the retail supply chain: The more things change …

You must login or register in order to post a comment.

Report Abusive Comment

Most Popular Articles

  • IBM survey says digitalization trends will sweep trucking industry by 2030

  • Gartner survey signals increased investment in resilience over the next two years

  • What Level of Automation is Right for Your Warehouse?

  • Growing up … and up and up: interview with Sam Bertram

  • Old Dominion adds nine freight service centers to handle business growth

Now Playing on DCV-TV

D92f0dd1 a98c 434a 9e17 30b63ee72c90

Automated Pack-out and Print-Apply System for thredUP

DCV-TV 4: Viewer Contributed
SilMan Industries designed and implemented a mixed polybag-carton system, including automated print and apply, in a new regional Fulfillment Center for thredUP, one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes, and accessories. The Situation Secondhand clothing and online...

FEATURED WHITE PAPERS

  • Time to rethink your lift truck power

  • Warehouse Management System Project Toolkit

  • Solving Talent Management Challenges Now and In the Future

  • Shaping Up Last Mile Delivery to Surpass Customer Expectations

View More

Subscribe to DC Velocity Magazine

GET YOUR FREE SUBSCRIPTION
  • SUBSCRIBE
  • NEWSLETTERS
  • ADVERTISING
  • CUSTOMER CARE
  • CONTACT
  • ABOUT
  • STAFF
  • PRIVACY POLICY

Copyright ©2021. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing