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Thursday, July 24, 2014

Logistics Report Shows Slow Growth, High Costs

The “new normal” is here for supply chains, and it’s enough to make purchasers and suppliers nostalgic for a better state of affairs.

This is one take-away from the 24th annual State of Logistics Report released June 19 by the Council of Supply Chain Management Professionals (CSCMP). The report defines “new normal” as slow economic growth, continued high unemployment, and high costs in virtually all logistics areas.

Credit: Salvatore Vuono at FreeDigitalPhotos.net

Credit: Salvatore Vuono at FreeDigitalPhotos.net

Based on 2012 data, the report does show some positives for the supply chain industry, notably its ability to optimize capacity, reduce costs, and increase productivity by making greater use of technology, improving asset utilization, and operating with fewer people.

The CSCMP report forecasts GDP growth of 2.5 to 4 percent this year. It says U.S. business logistics costs were $1.33 trillion in 2012. While this is a 3.4 percent increase from 2011, logistics costs remain at 8.5 percent of GDP, an indication that they remain well within the range of GDP growth.

The report states that while manufacturing did well in most of 2012, it turned downward in the fourth quarter last year, as a result of concerns about the fiscal cliff, and has yet to rebound this year. Inventory levels at the end of 2012 were 6.2 percent above their highest point during the Great Recession, and accounted for a 3.9 percent increase in investment over 2011, or $2.3 trillion. Not surprising, warehousing costs posted a solid 7.6 percent gain last year.

Key modes of transportation — truck, rail, and sea — had mixed results.

Truck transportation costs rose 2.9 percent last year, which barely kept pace with GDP growth. However, capacity utilization rates are high, the industry needs 30,000 drivers, and a federal hours-of-service regulation that took effect July 1 could reduce productivity by 2 to 5 percent.

Rail transport costs rose 4.9 percent in 2012, on top of a 16 percent hike in 2011. CSCMP believes rail is in position to take business from trucks and ships. One factor behind this might be intermodal transportation, which posted near-record volume.

Sea transport, meanwhile, is suffering from overcapacity and rate wars. As a result, prices were down 0.9 percent in 2012.

The report is available at www.cscmp.org. It is free to members and $250 for non-members.

 

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