Supply Chain Digest

06/28/2013

Source: State of Logistics Report 2013/CSCMP

Excerpts: Total cost of US logistics was estimated at $1.331 trillion in 2012, up 3.4% in absolute terms (not relative to GDP). A lot of elements go into that number, from warehouses to trucking to pipelines, but the three main categories are inventory carrying costs, including the costs of warehousing (32.6% of the total logistics spend), transportation costs (62.8%), and administrative costs, mostly related to logistics IT spend not otherwise capture in the other two categories (just 4.6% of the total).

Within transportation, trucking-related costs comprise 77.4% of transport costs and 48.6% of total logistics spend, while other modes (rail, water, pipelines, freight forwarders, etc.) account for 22.6% of transportation spend and 14.2% of the total logistics spend. All those numbers above were little changed in 2012 versus 2011.

Total rail freight revenue rose 4.3% even as ton-miles fell 1%. That’s pricing power. However, that 4.3% rise in rail spend was down from a whopping 15.6% increase in 2011.

That $1.331 trillion in total logistics spend is 21% above the 2009 bottom, but still below the 2007 peak of $1.39 trillion. We’ll note that total US manufacturing output is still about 5% below 2007 levels as well, despite pretty good growth since 2009. Both numbers show just how deep that recession was – we’re still not all the way back some five years later.

Inventory carrying costs were up 4% in 2012, down from a rise of 7.6% in 2011. But most of that 4% absolute rise in costs came from an identical rise in inventory levels. There were differences by sector – retail inventories increased 8.3%, compared to 3.8 and 1.3% for wholesale and manufacturing respectively. That’s a change from recent trends.

Overall, warehousing costs rose 7.6% in 2012, almost twice the rate of inventory growth. I am not sure what is behind that, although certainly warehouse space costs have been recovering of late.

Transportation costs were only up 3% in 2012, down from a 6% rise in 2011. In the trucking sector, spend was up about 3% on tonnage gains of 2.3%. That would imply a small rise in rates, although most publicly traded truckload and LTL carriers reported stronger rate environments in 2012.

The new Hours-of-Service rules scheduled to be enforced on July 1 will reduce driver productivity, impacting rates eventually and the driver shortage immediately. The productivity hit is thought to range from 2-10%.

A few other highlights from the report:

New truck sales: soared early in 2012, but new orders came to an abrupt end later as traffic slowed. Purchases still appear to be primarily replacing equipment being retired rather than adding to the fleet.

Ocean: It was largely more tough times for the ocean carriers, as vessel capacity jumped 7.2% even as demand fell off sharply globally. Deliveries will not fall off until 2014 because carriers did not stop ordering until mid-2011. Capacity is expected to rise by 10% in 2013 because of new deliveries, even as the number of TEU scrapped will reach record highs this year. During 2012, carriers tried seven times to implement general rate increases, but none stuck.

Airfreight: total tonnage dropping 2.2%, international tonnage declined 1.4% and domestic down 0.1%. More leading companies are switching from air to ocean, and that the focused express carriers are facing increasing competition from passenger airlines for the express shipment business.