The past few years have been turbulent ones for the logistics industry, which may have many supply chain professionals asking themselves, “Whatever happened to predictability?”
In particular, 2020 was a chaotic year of sudden stops, stuttering starts, dips, drips, and explosive rises—all while trying to reroute assets on the fly. As a result of this unpredictable, pandemic-driven year, U.S. business logistics costs fell 4.0% to $1.56 trillion, or 7.4% of 2020’s $20.94 trillion U.S. gross domestic product (GDP), according to the 32nd Annual Council of Supply Chain Management Professionals (CSCMP) State of Logistics Report.
The main driver of that drop was the decrease in inventory carrying costs, which fell 15%, due to the sudden drop in manufacturing and commerce early in the year caused by pandemic shutdowns.
This meant transportation volumes also fell. However, costs for many transportation and warehousing services rose, as networks dealt with capacity shortages, port congestion, and major shifts in consumer demand as well as assets that could not be deployed or redeployed efficiently. According to the report, 2020 exposed logistics systems that were optimized for cost and efficiency but were fragile and lacking resiliency in the face of disruptions.
“The 2020 upheaval of supply chains created chaos that placed gigantic demand on logistics, resulting in higher prices for logistics services despite a shrinking economy,” said Michael Zimmerman, one of the authors of the report and a partner with the consulting company Kearney at a press conference. “At the same time, due to halted economic activities during lockdowns and decreases in financial costs, logistics costs account for a lower percentage of GDP at 7.4% compared to the 7.6% in 2019.”
Some segments of the market did better than others in riding out the storm. Here’s a quick look at how some of the key modes and segments in the logistics industry fared. (For more in-depth analysis, see the report itself, which can be downloaded from CSCMP’s website.)
MORE CHANGE AHEAD
In spite of the upheaval of the past year, the report authors are hopeful. Logisticians proved themselves capable of quickly abandoning old plans, solving new problems, and handling disruptions. This ability to adapt will serve logistics professionals well in the future, as the report predicts that the pandemic’s aftereffects and “new surprises” will force logistics professionals to continually change their plans.
“There is no relief in sight,” said Zimmerman.
The list of potential future disruptors includes the trend toward multishoring, continuing technological advances, and climate-related disasters—to name just a few.
The report authors also predict that the cost of logistics will rise as the scope of what the field encompasses grows. As an example, they point to last-mile delivery, which used to be a “domestic” activity performed by consumers and is now an increasingly commercial one.
After the stresses of last year, logistics executives are focused on rebuilding their supply chains to be more resilient. State of Logistics Report authors don’t expect these changes to be minor. They predict that in 2021 and beyond executives will be fundamentally rethinking and redesigning their logistics networks. “In 2021, even if conditions prove less volatile, the changes may be more profound,” concludes the report.