U.S. shippers spent more than $1 trillion on logistics in 2004
Freight transportation and logistics costs rose 7.5 percent in 2004 to more than $1 trillion, an all-time high, as companies stockpiled more inventory to deal with supply chain disruptions and transportation delays, and higher interest rates made it more expensive to hold inventory, according to Rosalyn Wilson, author of an annual report on the state of logistics in the United States.
Logistics costs as a percentage of economic output — the benchmark measure for evaluating the efficiency of the logistics system — remained flat at 8.6 percent of Gross Domestic Product, offset in large part by 4.4 percent growth in the economy. Logistics costs have remained under 10 percent of GDP since 2000.
“The economic recovery has kind of masked that we’ve had a record increase in logistics costs,” Wilson said at press conference in Washington.
The $71 billion jump in logistics costs recorded by the report comes as no surprise to retailers, manufacturers and farmers, who have been pinched by higher transportation and inventory costs during the past 18 months as double-digit growth in import volumes continues to strain vessel, truck, rail and air cargo capacity and transportation providers take rate increases in a booming seller’s market.
Transportation costs, particularly trucking, accounted for the largest share of the cost increase, Wilson said. Trucking alone represented more than 50 percent of total logistics costs. Trucking costs rose $27 billion compared to 2003, as truckers increased profits and passed on higher costs for fuel, equipment and driver wages. The cost of transportation by rail rose more than 10 percent. Maritime shipping costs increased by $1 billion and air freight by $2 billion.
Transportation as a percentage of GDP has remained flat at 5.5 percent for three consecutive years.
Inventory carrying costs rose 10.6 percent in 2004 and average inventory investment rose to a record high $1.63 trillion, up $133 billion from 2003, according to U.S. Department of Commerce statistics.
Wilson explained that the inventory-to-sales ratio declined from 1.33 to 1.30 months of supply despite the increase in total inventory because retail sales are way up and inventory is turning faster.
Logistics costs continue to grow so far in 2005, but at a slower rate as inventory cost increases and interest rates have leveled off a bit, Wilson said.
The warehousing industry bounced back strong, with vacancy rates down to 9.6 percent at year end from a high of 11.1 percent in the first quarter of 2003 as demand increased to house inventory, Wilson said, noting data from warehouse developer ProLogis.
The report also referred to work done by consultant Richard Armstrong that showed shippers spent $115 billion in 2004 on third-party logistics services in North America.
Wilson said she revised some figures, especially for freight forwarding costs during the past years, after finding some Commerce Department data that was more reliable than assumptions used by previous author Robert Delaney. The adjustments did not noticeably change the overall logistics figures, she said.
The full report can be found on the Council of Supply Chain Management Professionals’ Web site at http://www.cscmp.org.