"State of Logistics Report": U.S. business logistics costs hit $1.45 trillion in 2014, up 3.1 percent from 2013
Logistics costs accounted for 8.3 percent of U.S. GDP last year, according to annual report issued by Council of Supply Chain Management Professionals (CSCMP).
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.
Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
The cost of operating the U.S. business logistics system in 2014 rose 3.1 percent to slightly less than $1.45 trillion, equal to about 8.3 percent of the nation's gross domestic product (GDP), according to the 26th annual "State of Logistics Report," released on Tuesday in Washington, D.C. The report is issued by the Council of Supply Chain Management Professionals (CSCMP) and presented by third-party logistics provider Penske Logistics.
The report said that 2014 was the best year for U.S. logistics since the start of the Great Recession in 2007. Barring unforeseen events in this year's second half, 2015 should show strong growth despite a weak first quarter caused by inclement weather, a stronger dollar that curbed export activity, and problems caused by labor strife at West Coast ports, the report forecast. "The U.S. economy is on fairly solid ground" with unemployment falling, real net income and household net worth inching up, low to moderate inflation, and declining oil prices putting more money in Americans' pocketbooks, wrote Rosalyn Wilson, the report's author.
2015 CSCMP State of Logistics Report Presented by Penske Logistics
"We're actually seeing some very sustained growth, in my opinion," she added in remarks during the press conference where the report was released.
Logistics costs as a percentage of GDP, one of the report's most frequently cited data points, has stayed within a range of 8.2 percent to 8.4 percent since 2010. However, Wilson, in an e-mail interview prior to the report's release, said that the current levels are likely unsustainable and that the ratio will eventually rise to levels of 9 to 9.5 percent as a dramatic tightening of motor carrier capacity causes freight rates to climb. That truck rates did not surge in 2014 was one of the biggest surprises in the report's findings, Wilson said in the interview.
While truck revenues rose 3 percent over 2013, tonnage gained 3.5 percent, meaning that rates remained relatively flat, according to the report. Trucking costs—measured as carrier revenues—accounted for slightly less than half of the total expense of the nation's logistics system.
"Carriers seem to still be spooked by the lean years when there was not enough freight to go around, and they are ... reticent to pass up freight even if (rates) are negotiated downward," said Wilson, a senior business analyst with Pasadena, Calif.-based Parsons Corp., an engineering and construction firm. She said shippers succeeded last year in whittling down proposed rate increases from 6 to 8 percent to levels approaching 2 percent. But that practice cannot continue indefinitely, especially as carrier capacity shrinks to extraordinary levels, Wilson said. "At some point, rates have to rise, and I think we'll see that by the end of this year," she said at the press conference.
When the pricing picture turns, it will likely be a quick and sharp change with one of the big carriers taking the lead and others following suit, Wilson said in the interview before the report's release. In her report, she advised shippers to pay more attention to carriers' capacity guarantees than to the rates they charge, and to work with carriers to optimize their equipment utilization. Shippers that do both stand the best chance of mitigating 2015 rate increases because carriers will be more willing to keep rates steady if they know their equipment and drivers were being turned faster and more efficiently, she said.
Mary Long, vice president of logistics and network planning for Ann Arbor, Mich.-based food chain Domino's Pizza, Inc., said Domino's is trying to make greater use of its private fleet for backhauls and has invested in additional equipment and drivers. Shawn E. Wattles, director of supply chain logistics for Chicago-based Boeing Co., said the aircraft manufacturing giant is also trying to maximize private fleet use, although the fleet only operates in Washington state, formerly the locale of Boeing's corporate headquarters and where it still maintains sizable operations. An increasing number of shippers are looking for hybrid solutions that allow them to take advantage of both for-hire and dedicated contract carriage, added Joe Carlier, vice president, sales for Reading, Pa.-based Penske Logistics. Penske has seen an increase of about 20 percent in the number of customers requiring such a solution, he said.
Although it is hard to match people, equipment, and infrastructure resources with demand, BNSF Railway is "in good shape" when it comes to capacity, velocity, and service, said Dean Wise, vice president of network strategy for Fort Worth, Texas-based railroad. Nevertheless, the rail industry, which has made record-high investments in infrastructure in the past few years, is concerned that port congestion could shift to the East Coast, Wise said. Another worry is that federal funding for highways and intermodal connectors, together with a slowdown in the issuance of permits for various expansion projects, could make it more difficult to maintain the gains that have been made, he said.
Panelists predicted the effects of the recent congestion and delays at West Coast ports, caused by the nearly year-long contract fight between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), would linger for some time to come. Ronald M. Marotta, vice president, international division for Yusen Logistics, a global freight forwarding and logistics concern in Secaucus, N.J., said the efficient, service-conscious Port of Savannah has gained permanent new business from shippers that had a positive experience after re-routing freight that would normally have entered the U.S. over the West Coast. Although activity at the West Coast ports is "more fluid" with "better velocity" than before, all stakeholders must continue working toward permanent improvement, Marotta said. "We've had some success, and I'm very certain next year will be better," he said.
The third-party logistics (3PL) segment turned in a strong performance in 2014 with net revenue—revenue after factoring in transportation costs—rising 7.4 percent, according to the report. Domestic transportation management and dedicated contract carriage services rose by 20.5 and 10.4 percent, respectively, as tightening truck capacity drove demand for those services. International transportation management and value-added warehousing and distribution services each posted low-single-digit increases. The overall 3PL market is expected to rise in 2015 by 5.7 percent. The 3PL data in the report came from Armstrong & Associates Inc., a consulting firm that closely covers that segment.
Rail intermodal volumes rose 5.2 percent last year, continuing a pattern of solid multiyear growth for the sector as it on-boarded new business as well as conversions from truckload services. Rail carloads rose 3.9 percent, while overall revenue increased 6.5 percent. Ocean containerized imports and exports rose slightly year-over-year, while air cargo revenue declined 1.2 percent, paced to the downside by a 3.6 percent drop in international revenue. The current downward trend in exports will likely continue in the coming months as the strong dollar continues to make U.S. products more expensive in overseas markets, Wilson said. "I don't see exports recovering, at least before the end of the year," she said.
INVENTORY CARRYING COSTS ON THE RISE
Inventory carrying costs rose 2.1 percent last year despite a 4.8 percent decline in the interest component as interest rates remained at historically low levels. Business inventory levels increased by 2.1 percent as taxes, obsolescence, depreciation, and insurance rose by 1.2 percent due to the growth in inventories. Warehousing costs rose 4.4 percent, capping off a second consecutive solid year as demand for warehouse space from e-commerce providers remained strong. U.S. retail e-commerce sales hit $237 billion 2014, up from $211 billion in 2013, according to the report.
In the e-mail interview, Wilson forecast further increases in carrying costs as interest rates finally begin to rise and warehousing demand—and expenses—continue to escalate.
The inventory-to-sales ratio, which measures a business' inventory investment in relation to its monthly sales, rose rapidly in 2014, the report found. The ratio ended 2014 at 1.35, its highest level since late 2009. A rising ratio generally indicates declining sales or excess inventory levels.
The rise was due largely to wholesalers and retailers ordering more goods in anticipation of labor- and congestion-related delays at West Coast ports, combined with slower-than-expected holiday sales, the report said. The wholesale and retail ratios leveled off and the ratio for manufacturing began to trend downward in Q1 of 2015, according to the report.
In an interview following the press conference, Wilson said she expects the overall inventory-to-sales ratio to decline. Rising inventory carrying and obsolescence costs, combined with escalating warehousing expenses, will provide an incentive for companies to get their inventory levels under control, she said.
"I'm concerned that inventories are as high as they are, but ... manufacturers are using up the supplies that they have. Nobody is ready to make big investments in more inventory," she said.
Editor's Note: This story was updated on June 25, 2015.
The New York-based industrial artificial intelligence (AI) provider Augury has raised $75 million for its process optimization tools for manufacturers, in a deal that values the company at more than $1 billion, the firm said today.
According to Augury, its goal is deliver a new generation of AI solutions that provide the accuracy and reliability manufacturers need to make AI a trusted partner in every phase of the manufacturing process.
The “series F” venture capital round was led by Lightrock, with participation from several of Augury’s existing investors; Insight Partners, Eclipse, and Qumra Capital as well as Schneider Electric Ventures and Qualcomm Ventures. In addition to securing the new funding, Augury also said it has added Elan Greenberg as Chief Operating Officer.
“Augury is at the forefront of digitalizing equipment maintenance with AI-driven solutions that enhance cost efficiency, sustainability performance, and energy savings,” Ashish (Ash) Puri, Partner at Lightrock, said in a release. “Their predictive maintenance technology, boasting 99.9% failure detection accuracy and a 5-20x ROI when deployed at scale, significantly reduces downtime and energy consumption for its blue-chip clients globally, offering a compelling value proposition.”
The money supports the firm’s approach of "Hybrid Autonomous Mobile Robotics (Hybrid AMRs)," which integrate the intelligence of "Autonomous Mobile Robots (AMRs)" with the precision and structure of "Automated Guided Vehicles (AGVs)."
According to Anscer, it supports the acceleration to Industry 4.0 by ensuring that its autonomous solutions seamlessly integrate with customers’ existing infrastructures to help transform material handling and warehouse automation.
Leading the new U.S. office will be Mark Messina, who was named this week as Anscer’s Managing Director & CEO, Americas. He has been tasked with leading the firm’s expansion by bringing its automation solutions to industries such as manufacturing, logistics, retail, food & beverage, and third-party logistics (3PL).
Supply chains continue to deal with a growing volume of returns following the holiday peak season, and 2024 was no exception. Recent survey data from product information management technology company Akeneo showed that 65% of shoppers made holiday returns this year, with most reporting that their experience played a large role in their reason for doing so.
The survey—which included information from more than 1,000 U.S. consumers gathered in January—provides insight into the main reasons consumers return products, generational differences in return and online shopping behaviors, and the steadily growing influence that sustainability has on consumers.
Among the results, 62% of consumers said that having more accurate product information upfront would reduce their likelihood of making a return, and 59% said they had made a return specifically because the online product description was misleading or inaccurate.
And when it comes to making those returns, 65% of respondents said they would prefer to return in-store, if possible, followed by 22% who said they prefer to ship products back.
“This indicates that consumers are gravitating toward the most sustainable option by reducing additional shipping,” the survey authors said in a statement announcing the findings, adding that 68% of respondents said they are aware of the environmental impact of returns, and 39% said the environmental impact factors into their decision to make a return or exchange.
The authors also said that investing in the product experience and providing reliable product data can help brands reduce returns, increase loyalty, and provide the best customer experience possible alongside profitability.
When asked what products they return the most, 60% of respondents said clothing items. Sizing issues were the number one reason for those returns (58%) followed by conflicting or lack of customer reviews (35%). In addition, 34% cited misleading product images and 29% pointed to inaccurate product information online as reasons for returning items.
More than 60% of respondents said that having more reliable information would reduce the likelihood of making a return.
“Whether customers are shopping directly from a brand website or on the hundreds of e-commerce marketplaces available today [such as Amazon, Walmart, etc.] the product experience must remain consistent, complete and accurate to instill brand trust and loyalty,” the authors said.
When you get the chance to automate your distribution center, take it.
That's exactly what leaders at interior design house
Thibaut Design did when they relocated operations from two New Jersey distribution centers (DCs) into a single facility in Charlotte, North Carolina, in 2019. Moving to an "empty shell of a building," as Thibaut's Michael Fechter describes it, was the perfect time to switch from a manual picking system to an automated one—in this case, one that would be driven by voice-directed technology.
"We were 100% paper-based picking in New Jersey," Fechter, the company's vice president of distribution and technology, explained in a
case study published by Voxware last year. "We knew there was a need for automation, and when we moved to Charlotte, we wanted to implement that technology."
Fechter cites Voxware's promise of simple and easy integration, configuration, use, and training as some of the key reasons Thibaut's leaders chose the system. Since implementing the voice technology, the company has streamlined its fulfillment process and can onboard and cross-train warehouse employees in a fraction of the time it used to take back in New Jersey.
And the results speak for themselves.
"We've seen incredible gains [from a] productivity standpoint," Fechter reports. "A 50% increase from pre-implementation to today."
THE NEED FOR SPEED
Thibaut was founded in 1886 and is the oldest operating wallpaper company in the United States, according to Fechter. The company works with a global network of designers, shipping samples of wallpaper and fabrics around the world.
For the design house's warehouse associates, picking, packing, and shipping thousands of samples every day was a cumbersome, labor-intensive process—and one that was prone to inaccuracy. With its paper-based picking system, mispicks were common—Fechter cites a 2% to 5% mispick rate—which necessitated stationing an extra associate at each pack station to check that orders were accurate before they left the facility.
All that has changed since implementing Voxware's Voice Management Suite (VMS) at the Charlotte DC. The system automates the workflow and guides associates through the picking process via a headset, using voice commands. The hands-free, eyes-free solution allows workers to focus on locating and selecting the right item, with no paper-based lists to check or written instructions to follow.
Thibaut also uses the tech provider's analytics tool, VoxPilot, to monitor work progress, check orders, and keep track of incoming work—managers can see what orders are open, what's in process, and what's completed for the day, for example. And it uses VoxTempo, the system's natural language voice recognition (NLVR) solution, to streamline training. The intuitive app whittles training time down to minutes and gets associates up and working fast—and Thibaut hitting minimum productivity targets within hours, according to Fechter.
EXPECTED RESULTS REALIZED
Key benefits of the project include a reduction in mispicks—which have dropped to zero—and the elimination of those extra quality-control measures Thibaut needed in the New Jersey DCs.
"We've gotten to the point where we don't even measure mispicks today—because there are none," Fechter said in the case study. "Having an extra person at a pack station to [check] every order before we pack [it]—that's been eliminated. Not only is the pick right the first time, but [the order] also gets packed and shipped faster than ever before."
The system has increased inventory accuracy as well. According to Fechter, it's now "well over 99.9%."
IT projects can be daunting, especially when the project involves upgrading a warehouse management system (WMS) to support an expansive network of warehousing and logistics facilities. Global third-party logistics service provider (3PL) CJ Logistics experienced this first-hand recently, embarking on a WMS selection process that would both upgrade performance and enhance security for its U.S. business network.
The company was operating on three different platforms across more than 35 warehouse facilities and wanted to pare that down to help standardize operations, optimize costs, and make it easier to scale the business, according to CIO Sean Moore.
Moore and his team started the WMS selection process in late 2023, working with supply chain consulting firm Alpine Supply Chain Solutions to identify challenges, needs, and goals, and then to select and implement the new WMS. Roughly a year later, the 3PL was up and running on a system from Körber Supply Chain—and planning for growth.
SECURING A NEW SOLUTION
Leaders from both companies explain that a robust WMS is crucial for a 3PL's success, as it acts as a centralized platform that allows seamless coordination of activities such as inventory management, order fulfillment, and transportation planning. The right solution allows the company to optimize warehouse operations by automating tasks, managing inventory levels, and ensuring efficient space utilization while helping to boost order processing volumes, reduce errors, and cut operational costs.
CJ Logistics had another key criterion: ensuring data security for its wide and varied array of clients, many of whom rely on the 3PL to fill e-commerce orders for consumers. Those clients wanted assurance that consumers' personally identifying information—including names, addresses, and phone numbers—was protected against cybersecurity breeches when flowing through the 3PL's system. For CJ Logistics, that meant finding a WMS provider whose software was certified to the appropriate security standards.
"That's becoming [an assurance] that our customers want to see," Moore explains, adding that many customers wanted to know that CJ Logistics' systems were SOC 2 compliant, meaning they had met a standard developed by the American Institute of CPAs for protecting sensitive customer data from unauthorized access, security incidents, and other vulnerabilities. "Everybody wants that level of security. So you want to make sure the system is secure … and not susceptible to ransomware.
"It was a critical requirement for us."
That security requirement was a key consideration during all phases of the WMS selection process, according to Michael Wohlwend, managing principal at Alpine Supply Chain Solutions.
"It was in the RFP [request for proposal], then in demo, [and] then once we got to the vendor of choice, we had a deep-dive discovery call to understand what [security] they have in place and their plan moving forward," he explains.
Ultimately, CJ Logistics implemented Körber's Warehouse Advantage, a cloud-based system designed for multiclient operations that supports all of the 3PL's needs, including its security requirements.
GOING LIVE
When it came time to implement the software, Moore and his team chose to start with a brand-new cold chain facility that the 3PL was building in Gainesville, Georgia. The 270,000-square-foot facility opened this past November and immediately went live running on the Körber WMS.
Moore and Wohlwend explain that both the nature of the cold chain business and the greenfield construction made the facility the perfect place to launch the new software: CJ Logistics would be adding customers at a staggered rate, expanding its cold storage presence in the Southeast and capitalizing on the location's proximity to major highways and railways. The facility is also adjacent to the future Northeast Georgia Inland Port, which will provide a direct link to the Port of Savannah.
"We signed a 15-year lease for the building," Moore says. "When you sign a long-term lease … you want your future-state software in place. That was one of the key [reasons] we started there.
"Also, this facility was going to bring on one customer after another at a metered rate. So [there was] some risk reduction as well."
Wohlwend adds: "The facility plus risk reduction plus the new business [element]—all made it a good starting point."
The early benefits of the WMS include ease of use and easy onboarding of clients, according to Moore, who says the plan is to convert additional CJ Logistics facilities to the new system in 2025.
"The software is very easy to use … our employees are saying they really like the user interface and that you can find information very easily," Moore says, touting the partnership with Alpine and Körber as key to making the project a success. "We are on deck to add at least four facilities at a minimum [this year]."