Business logistics costs finally reverting to prepandemic levels, according to annual report
After sluggish demand in 2023, the “35th Annual State of Logistics Report” anticipates tightening of capacity, potential upturn in transportation rates in second half of 2024.
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.
U.S. business logistics costs for 2023 dropped 10% to $2.4 trillion, or 8.7% of last year’s $27.4 trillion gross domestic product (GDP), according to the “2024 State of Logistics Report” released today. The annual report—which is produced by the analyst firm Kearney for the industry association the Council of Supply Chain Management Professionals (CSCMP)—says this is the first time that costs have declined since the start of the pandemic four years ago.
“This was not unexpected,” said Josh Brogan, Kearney partner and lead author of the report, during the press conference announcing the results. “After the initial impacts of Covid were felt in 2020, we saw a steady rise in logistics costs, even in terms of total GDP. What we are seeing now is a reversion more toward the mean. We are starting to see a reversion in certain [transportation] modes toward prepandemic levels of cost.”
Now in its 35th year, the “State of Logistics Report,” which is sponsored by third-party logistics service provider Penske Logistics, provides a yearly review of the health of primary logistics sectors and of the industry as a whole.
According to Brogan, the biggest drop in costs was seen in asset-heavy transportation sectors, such as air cargo and ocean shipping, driven mostly by rate decreases. While modes such as motor freight have also seen cost decreases due to soft volumes and ample capacity, these reductions were not as large as air and water transport. Additionally, storage costs dropped last year with the market seeing a decline in rents for the first time since the pandemic.
“By and large we are seeing reductions in logistics costs across the board,” summarized Brogan.
Breakdown by mode
The 60-page report, which is free for CSCMP members and $299 for nonmembers, breaks down logistics costs by mode and sector (see chart below) and provides an in-depth analysis of expectations for the coming year.
FIGURE 1: The USBLC decreased 11.2% YoY between 2022 and 2023
Some key insights include:
Motor carriers: Costs decreased 8.6% in 2023, as the downturn in consumer demand, plus a lingering surplus in capacity, led to rates remaining steady and lower than in the past few years.
Parcel: Costs held relatively steady with a slight 0.5% drop. Volume fell for UPS and FedEx, as shippers looked to use more regional and local carriers.
Rail: The largest railroads saw a 2% decline in revenue and an 11% decrease in operating income due to a drop in intermodal volume, higher fuel prices, and greater labor expenses.
Air freight: Costs dropped by 15.4% as passenger traffic returned to normal, bringing online more belly capacity for transporting freight. In addition, some ocean carriers added air freight capacity in effort to broaden their offerings.
Water: Waterborne freight saw sluggish demand and excess capacity. As a result, shippers were able to negotiate better contracts, leading to a 64.2% decrease in costs.
Storage: Demand for new warehouse space has cooled and rents have dropped, causing costs to decline by 13.9%.
Future outlook
Looking ahead, the market will continue to favor shippers over transportation providers for the near term. The report recommends that shippers take advantage of the opportunity to lock in lower rates and diversify their carrier portfolios. The report’s authors do anticipate that capacity will begin to tighten in the second half of the year, resulting in an upturn in rates.
In general, both shippers and providers will have to contend with a muted level of global economic growth. Economists are predicting that the global GDP will grow by 2.5% in 2024, down from 2.7% in 2023. Additionally military conflicts and geopolitical tensions are putting stress on global supply chains, adding costs and friction. As a result, many companies are looking to “rewire” their distribution networks. These redesign efforts are driven not just by cost concerns but also by efforts to enable greater capacity, agility, and flexibility.
"The interesting part of the equation is how much of that is going to be onshoring/nearshoring versus more friendly offshoring," said Brogan. "There isn’t a consensus, there’s a lot of debate about what those strategies mean and obviously that has big implications for overall logistics costs in the long and medium term."
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
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.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.