The annual State of Logistics Report shows that a chaotic and unpredictable 2020 led to logistics cost dropping by 4%. Expect this trend of constant change to continue, authors say.
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.
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.”
SECTOR-BY-SECTOR BREAKDOWN
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.)
Motor carrier freight: Trucking, the biggest segment of U.S. logistics spend, fell by 1.6% year over year. A strong fourth quarter and a continuing economic recovery, however, indicate that rates will remain high through 2021. One silver lining of the pandemic is that the need to avoid “touch” processes drove many trucking firms to finally embrace digitization. New digital technologies, such as online freight booking and digital bill of materials, should lead to improved services levels in the future, predicts the report.
Parcel: Homebound consumers caused e-commerce to explode in 2020, growing by 33% to $792 billion or 14% of all retail sales. This rapid rise fueled a 24.3% year-over-year increase in parcel shipping spend, which totaled $118.6 billion, but it also had shippers scrambling to adjust their delivery offerings and solutions.
Rail: Volumes and revenue were down overall for the rail industry, with spend dropping 11% year-over-year to $74.3 billion. This drop was due to reduced volumes in industrial products and coal. Intermodal, however, saw smaller declines as high trucking prices pushed some shippers to switch modes.
Water: Logistics costs associated with water shipping dropped 28.6% year over year, in part due to a one-time reclassification in the report’s methodology. However, the decrease in exports and in traffic on domestic waterways would have kept costs down substantially regardless of the recalculation. Rates and volumes, however, soared in late 2020 as retailers restocked and have remained high ever since.
Air cargo: Air cargo costs totaled $96.5 billion in 2020, a 9% increase over 2019. Rates remain “shockingly high” even in mid-2021, as most airlines have not recovered from the cancellation of passenger flights in 2020. The authors expect that demand will continue to exceed supply in 2021.
Warehousing: The e-commerce boom spurred high demand for warehousing space especially in urban locations. At the same time, warehouse flows have become more complicated and labor conditions remain tight, leading more warehouses to turn to automation.
Freight forwarding: While volumes declined in this segment, higher rates led to higher 2020 revenues. The report predicts that freight forwarding will see fierce competition as more traditional providers face off against new digital startups, carriers seeking to become end-to-end providers, and ambitious moves from Amazon and Maersk. They also predict more mergers and acquisitions ahead.
Third-party logistics providers (3PLs): While many 3PLs saw higher revenue last year, some experienced cost increases, which harmed their profitability. The report authors predict that as supply chain and logistics become more complex, the sector will continue to growth.
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.
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 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.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.