Report: Shippers to face rising logistics costs in U.S.

Tight trucking and warehouse capacity will force rates higher as the U.S. economy improves, according to a new report from the Council of Supply Chain Management Professionals.    Logistics costs relative to the overall economy in 2014 remained steady, but buyers of freight transportation and logistics services should prepare to spend more in the next couple of years as truck capacity constricts and interest rates rise, the author of an annual industry benchmark study said Tuesday.
   Business expenditures on transportation and warehousing as a percentage of national productivity dipped 0.1 percent to 8.3 percent in 2014, according to the 2014 “State of Logistics” report by transportation economist Rosalyn Wilson for the Council of Supply Chain Management Professionals. Logistics costs have stayed in a narrow band between 8.2 percent and 8.4 percent since 2010, after rising from 7.8 percent in 2009 when the recession torpedoed demand for freight and related services.
   At a press conference in Washington, Wilson predicted rate increases for trucking, along with with higher costs to store goods, will force overall logistics costs to rise.
   Truck rates have not increased significantly in recent years despite a tight supply of capable commercial drivers and carriers’ reluctance to expand fleet sizes because volumes have not fully recovered, but that is beginning to change as consumer and industrial demand increase, said Wilson.
   Meanwhile, companies are carrying more inventory, as evidenced by the rising inventory-to-sales ratio for retailers since 2011 and low vacancy rates for warehouses. When the Federal Reserve raises interest rates, expected later this year, it will cost more to borrow money for commercial purposes. Wilson indicated inventory carrying costs will then exceed the 2.1 percent growth in 2014.
   “Once the interest rates go back up, especially at the level that we’ve got inventory at right now, and we start seeing rate increases among the modes, we’re going to see that [cost metric] bounce back up again,” she said.
   A robust economy probably would put logistics costs at 9.5 percent to 10 percent of Gross Domestic Product, which would still be considered very efficient by historical standards, added Wilson.
   If interest rates were the same as in 2007, Wilson said, the logistics industry’s share of GDP would have been 9.5 percent instead of 8.4 percent.
   The growth of third-party logistics providers, technology and information sharing, more fuel-efficient vehicles and process improvements have slashed logistics costs in half, relative to overall national output, over the past 35 years. At the turn of the century, logistics costs were about 10 percent of the total economy.
   Business inventory and transportation, the main components of overall logistics cost, have both remained flat since 2010, hovering around 2.75 percent and 5.24 percent of GDP, respectively. 
   On an absolute basis, the cost of the U.S. business logistics system rose 3.1 percent in 2014 to $1.45 trillion, according to the CSCMP report. Transportation costs increased 3.6 percent due to stronger shipment volumes.