State of Logistics Report – Slow but Steady Rebound

More of a casual jog than an all-out sprint is one way to describe the rate at which the logistics industry has regained ground since the economic recession.  That is one takeaway from the “23^rd Annual State of Logistics Report” that was released in late June.

The annual report has been prepared every year since 1988 by Rosalyn Wilson of Delcan, Inc.  The current report, which tracks logistics trends and spending during 2011 found total logistics costs increased to $1.28 trillion, an increase of 6.6 percent from the previous year, and a figure that accounted for 8.5 percent of the overall U.S. gross domestic product.

While 6.6 percent may seem like a healthy increase, consider in the decade prior to the start of the recession, costs increased by 63 percent, and accounted for more than 10 percent of GDP.

Among the report’s findings:

• The 6.6 percent increase in costs was due more to increased rates, than to any increases in volume.

• Trucking companies are increasingly incorporating intermodal rail options as a way to help offset the impacts of driver shortages and high equipment costs.

• The rise in intermodal transportation helped boost railroad market share, with overall revenue up by 15.3 percent.

• Overall, trucking rates increased by 5 to 15 percent during 2011.

• Despite strong showing of U.S. exports, air cargo revenue actually dropped, with international revenue down by less than one percent, and domestic levels down by more than three percent.

• Inventory carrying costs continued to rise, and overall inventories have returned to pre-recession levels.  Retail inventories, however, have remained flat, suggesting that retail management practices may have undergone a post-recession rethinking process.

• Pending government regulations including the Federal Motor Carrier Safety Administration’s revised “Hours of Service” rules will have a measurable impact on capacity concerns and driver productivity.  Some estimates predict that the new hours of service rules will decrease driver productivity by as much as 3 to 8 percent, because of the reduced number of hours that a driver will be able to work.

Wilson says that the slow pace of spending indicates that “we have not made it through the recession yet,” since logistics spending tends to increase as businesses feel better about their futures and show more confidence about investing more in inventory and logistics.