"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.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”