Transportation consultant Rosalyn Wilson tracked and measured all costs associated with moving freight through the U.S. supply chain since 1988. Her report also presents an overview of the economy during the past year, the logistics industry’s key trends, and total U.S. logistics costs for 2012. The findings suggest that the U.S. is no longer in recovery mode, but rather in the “new normal” for the economy and supply chain industry as a whole. The “new normal” is characterized by slow growth, namely GDP growth hovering between 2.5 to 4 percent, higher unemployment levels, higher healthcare costs for businesses and less reliable or predictable freight service as volumes rise. Following is a brief summary of the report.
Key findings 2012
- 2012 can be characterized by a lack of sustained growth in the economy and by extension, the freight sector.
- Parts of the economy were made lean or right-sized such as truck and cargo jet fleets and retail inventory levels; supply chain practices were adapted to be even more mode-agnostic, making best use of the available capacity, reducing costs and still increasing productivity.
- Entire industries were expected to remake themselves following a less labor-intensive model with increased use of technology to improve quality and cut costs.
- Logistics costs as a percentage of GDP in the U.S. compares quite favorably to that of trading partners. Slow economic growth has kept the percentage lower than normal, but the supply chain sector has made great strides in productivity, asset utilization and inventory management in the last three years.
- Total U.S. business logistics costs rose in 2012 to $1.33 trillion, a 3.4 percent increase from the previous year, remaining at 8.5 percent of the U.S. GDP.
- The trucking industry is facing a serious capacity problem even in this lower volume environment and will have difficulty meeting demand with new rules such as the U.S. Department of Transportation’s new Federal Motor Carrier Safety Administration (FMCSA) Hours of Service (HOS) regulation going into effect on July 1, 2013, affecting driver availability.
- Accumulated inventories across manufacturing, wholesale and retail have the potential to become a drag on the economy.
- Intermodal will continue to grow and is becoming the most efficient way to move goods in the “new normal.”
- Ocean carriers will continue to be plagued with overcapacity and rate problems due to optimistic economic forecasts that led to companies expanding their fleets.
- According to Armstrong and Associates, revenues for the 3PL sector rose 5.9 percent in 2012 and as a result, companies are looking to outsource logistics. The domestic transportation management industry was the fastest growing economic sector with gross revenues up 9.2 percent.
- 2013 is following a pattern similar to the last two years: mixed economic signals and unbalanced performance.
− Economy: Expect continued, slow growth with the GDP hovering between 2.5 to 4 percent.
− While hiring is growing and the unemployment rate is slowly dropping, expect higher or stagnant unemployment rates due to discouraged workers re-entering the market place as the economy improves. Jobs are not keeping up with population growth.
- Although intermodal is on the rise, there will not be a shift to consolidate logistics services across trucking, rail, ocean sectors, etc. due to potential government monopoly regulations.
- Inventory levels surpassed the previous high point established at the height of the recession. The year-end inventory figure was 6.2 percent higher than the former high point.
- The average investment in all business inventories (agriculture, mining, construction, services, manufacturing, wholesale and retail trade) increased 3.9 percent over 2011 to almost $2.3 trillion in 2012.
- All business inventories rose in three out of four quarters in 2012, falling only during the second quarter.
- Inventory management techniques are improving; these practices are likely to be some of the major learnings coming out of the very trying period we have endured for almost five years.