A LOOK BEHIND THE STATE OF LOGISTICS – 2015

Last week, the Council of Supply Chain Management Professionals (CSCMP) released the “27th Annual State of Logistics Report”. This year’s report was entitled Logistics in Transition: New Drivers at the Wheel, partially due to the fact that it was authored by a new researcher, A.T. Kearney. The SOL report was launched in 1988, by the late Bob Delaney, one of the leading supply chain experts of that time; and after his death carried on by Rosalyn Wilson until last year. In 2015, for reasons that are not clear, CSCMP awarded a contract to ATK to perform the research and publish the results.

2015 business logistics costs totaled $1.4 trillion, or 7.85% of Gross Distribution Product. Expenditures were up 2.6% y/y, but the percentage of GDP was slightly less than last year’s 7.91%. This suggests a slow growth in the logistics industry.

Functional expenses were:
Motor Carriers $582.6 B
Rail 80.7
Parcel 82.2 (New Category)
Airfreight 67.4
Water 47.6
Pipeline 29.5
Inventory Carrying Costs 427.3
Administration 91.0

ATK suggested that the major issues for 2015 were energy, freight transportation capacity, inventories, efficiency improvement, and e-commerce.

Other observations indicated:
• One reason for the slow growth in transportation costs (+1.3%) was the drop in energy costs and the resultant fuel surcharges. This affected all modes.
• Overcapacity in the TL market also helped drive rates down, and the long expected massive truck driver shortage has yet to materialize, although the current shortfall still exists.
• Inventory carrying costs were up. While inventories themselves flattened in 2015, after a five year steady rise, carrying costs were up 5.1%.
• E commerce impacted the parcel carriers, with UPS, FedEx and USPS reporting a combined 8% revenue growth.
• In the LSP industry, technology is playing an increasingly important role.

In other words, there were no real surprises, and much of the material covered was similar to previous years. The report contained a good analysis and discussion of the issues, however – a little more comprehensive than previous years’ reports; and it was “slicker” looking, with good organization and visual effects.

One interesting difference was the method of estimating transportation costs. This year’s report used a different methodology; and for the sake of historical comparisons, restated the figures for 2006 – 2014 using the new sources. Under this scenario we find that previous years had been overstated by amounts ranging from $56B in 2009, to $169B in 2006. The y/y trends using each method were consistent, however. While interesting, all this really tells us is that possibly as an industry, we spent less than we thought. That knowledge will have little if any impact on our forward path through supply chain challenges. (As a footnote, with the decision by the UK to leave the European Union, I believe these challenges will increase, but we will not know how for quite some time.)

At 30 plus pages, the report is lengthy, but a reading would be time well spent. It is available at www.cscmp.org.

Written By: Clifford F. Lynch