As demand and prices for logistics services continue to increase, US businesses are finding themselves spending more and more on transportation and warehousing. With prices of big-rig haulers, airfreight, parcel carriers and storage all on the rice, demand isn't showing any signs of slowing down.
The Wall Street Journal reports that total spending on shipping costs rose to a record of $1.5 trillion in 2017, upping 6.2 percent from the year before. In the coming year, rising interest rates, higher costs of fuel and impending tariffs are expected to add to business expenses throughout the remainder of the year.
Sean Monahan, a consultant with A.T. Kearney and co-author of the Council of Supply Chain Management Professional's annual State of Logistics report, tells the Wall Street Journal that the freight market was showing signs of picking up after nearly two years of excess capacity last year. However, shippers ended up being caught off guard when prices started to rise.
The annual report shows freight rates jumping late last year. Hurricanes in US Gulf Coast states and Puerto Rico strained logistics networks and transportation providers scrambled to deliver relief supplies, but only a few weeks later the electronic logging device mandate was enforced, making truckers log their driving hours, limiting their time behind the wheel, the Wall Street Journal reports.
By the end of 2017, US business logistics costs accounted for 7.7 percent of GDP for the year. the cost to ship goods and products will grow faster than GDP, the Wall Street Journal reports.
According to the Wall Street Journal, the average rate per mile has risen upwards of 30 percent this year, and that is even before the annual peak shipping season which ramps up in the late summer months.
Large retailers and manufacturers will need to develop broader contracts to guarantee capacity, the Wall Street Journal reports. Since last year, freight companies have been turning down loads because they don't have enough drivers.
According to the annual report, motor carrier costs rose 7.8 percent to $641 billion for US businesses last year. Rail transportation and airfreight costs also raised, while the cost of inventory storage was up 4.2 percent.
The Wall Street Journal reports that e-commerce sales helped drive up parcel delivery costs this last year due to higher volumes of e-commerce shipping and residential deliveries being shifted away from traditional logistics operations. During its peak season, demand for workers at fulfillment centers is expected to increase, and with unemployment at a low, it may be hard to accommodate. With a labor shortage, logistics and warehousing operations may start turning towards automation.
With US renegotiations of the North American Free Trade Agreement entering a period of uncertainty and the looming trade war with China can have a massive effect on the overall global economy and waken demand for logistics services, the Wall Street Journal reports. The current trade is likely to continue as is, but just cost more.