U.S. logistics industry on the brink of recovery

Source: Material Handling Industry

Jul 22, 2010

The 21st Annual "State of Logistics Report," released by the Council of Supply Chain Management Professionals (CSCMP) reveals that, continuing the decline reported in 2008, business logistics costs fell to 7.7% of U.S. Gross Domestic Product (GDP) in 2009, as compared to 9.3% the previous year.

Total U.S. logistics costs dropped again last year showing a significant decrease from 2008. Interest rates remained historically low, and this, combined with lower inventory levels, pushed the interest paid on inventories down over 89% from 2008 levels.

The report indicates that the logistics industry is seeing positive signs of recovery in 2010 with increasing truck freight volumes and higher truck fleet utilization rates. The forecast is for 4% to 6% growth in freight traffic for trucks this year and next, according to Rosalyn Wilson, the author of the report. Wilson said this was a conservative estimate as freight typically grows by about 10% coming out of a recession.

In 2009, inventory-carrying costs continued to fall due to a 4.6% decline in inventory and a further plunge in interest rates. Pressure on rates and an inability to move goods resulted in warehousing costs falling 2% below those of 2008. Although early 2009 saw warehouses full of inventory, by mid-year goods had been drawn down or relocated, leaving facilities with empty space.

Transportation costs were 20.2% lower than 2008 levels, with all modes of transportation being negatively affected. Trucking, which comprises a large percentage of the transportation component, had a 9% drop in tonnage carried. Rail carload traffic was also down from the previous year. The ocean sector reported sharp declines, lowering rates to stimulate business, with some ocean carriers reporting losses for the first time in their company's histories. After heavy losses early in the year, air cargo had a much stronger showing by the latter part of 2009.

Due to abundant capacity and decreased freight to move, the industry has experienced significant pressure to reduce costs. Although shippers have responded with reductions, customers have not necessarily noticed a decline in rates.

Overall, indicators show improvements in the fourth quarter with a focus on future direction. "The economy is beginning to recover, and although time will tell how the logistics sector deals with the recovery, those companies that use the statistics and industry insight contained in this report will be better prepared for the business activity ahead," said Rick Blasgen, CSCMP President and CEO. "This research presents data for company leaders to be able capitalize to on the recovery as it occurs, such as restructuring their distribution networks to maximize efficiency and minimize miles, investing in technologies to facilitate 'green' transportation, and improving real-time data flows to increase visibility and enhance productivity."

"Logistics providers were among the first to feel the effects of the economic downturn", said Vince Hartnett, President, Penske Logistics. "Today, we are seeing some positive signs of recovery in the supply chain with increasing truck freight volumes and higher truck fleet utilization rates. If this continues, trucking and logistics firms will likely add capacity to take on additional loads and hire drivers to meet increasing demand."

"Anecdotally, we are also seeing more Fortune 1000 level companies evaluating logistics outsourcing compared with the previous 12-month period," Hartnett continued. "This tells us that business leaders are looking to capture emerging growth opportunities while still staying focused on cash and capital - a good combination for our industry and a steady recovery."

Since 1988, the "State of Logistics Report" has tracked and measured all costs associated with moving goods through the U.S. supply chain. The report benchmarks key metrics in U.S. logistics such as transportation and inventory-carrying costs, freight volumes, and revenues, giving practitioners a big-picture view of the performance of the U.S. supply chain process.

For more information on the CSCMP "State of Logistics Report" go to http://state-of-logistics.presslift.com/2010.