2013 – a “complicated year”

The much anticipated CSCMP’s annual State of the Logistics described 2013 as not a “stellar year” for the US economy. But, it was a complex one as freight did not always mirror the economy throughout the year.

Indeed, as a percentage of GDP, US logistics costs grew at a slightly lower rate than GDP with inventory carry costs increasing 2.8% while transportation costs increased 2.0%. This translated into 2013 logistics costs as a percentage of nominal GDP declining to 8.2%.

The disconnect between the economy and freight is evident and perhaps suggest additional changes are occurring. Of the subcategories of inventory, retail inventories noted the biggest increase, rising 6.2% year-over-year, however retail sales did not match this growth. Meanwhile, trucking, the largest component of transportation costs, posted only a 1.6% increase in 2013 – one of the weakest revenue rises in several years. Tonnage increased 6.1% because loads were heavier even though the number of shipments reduced. Capacity concerns continue as government regulations such as the Hours of Service have reduced productivity within the trucking industry. Also, additional costs are on the rise as companies seek to replace drivers that are leaving.

Meanwhile, costs for rail transportation increased 4.9%. Revenue rose by 5.3% while overall rail traffic increased 9.2%. Again, capacity remains a concern as volumes are rising faster than can be absorbed by industry.

Air revenues were unchanged while ocean showed some growth. Both are faced with overcapacity and changes in makeup. For example, according to the report, passenger jets are taking market share from cargo freighters while slow steaming has become standard practice and thus resulting in changes in shipping patterns within the ocean segment.

Based on the analysis presented in this year’s State of Logistics report, 2013 was indeed “complicated”. Perhaps it also depicts to a degree, a paradigm shift – from globalization towards regionalization.

While overcapacity persists in air and ocean, capacity constraints are evident in trucking and rail. True for each transport mode, there are other underlying concerns, but as noted in the report, ocean carriers are either dropping particular ports of call or reducing the frequency to some ports. As a result, shippers now have to plan for longer round trips and less regularity. In other words, shippers may be opting to carry slightly more inventory as a result of this while reserving air freight needs for either higher value goods or for last minute needs. This may be seen in the fact that warehousing costs increased 5.6% during the year. It was also noted in the report that the US industrial vacancy rate ended 2013 at 8.0% down from 8.9% in 2012, which also may show the changing supply chain networks of shippers as they look to move closer to customers.

Also, even though the effects of rising NAFTA trade were not mentioned in the State of the Logistics report, its influence on trucking and rail will also further exacerbate concerns within these two modes – that of capacity and potential rate adjustments.

To conclude, the author of the report expects 2014 to be a “banner year” for the logistics industry. Indeed, Ms. Wilson, the author, notes the first five months of 2014 have been the strongest freight performance since the end of the Great Recession – freight shipments up 13.1%, freight payments up 11.0% and manufacturing and industrial production growing. Here’s hoping capacity concerns are corrected quickly and successfully and improvements in the economy continue to keep the positive momentum going.