September 11, 2015 | Industry Insights
2014 A Boon Year for Supply Chain Industry
In the annual State of Logistics Report, produced by the Council of Supply Chain Management Professionals (CSCMP) and presented by Penske Logistics, the freight and logistics industry experienced a banner year in 2014 with record levels reached in certain sectors. In fact, according to Rosalyn Wilson, a transportation consultant who researches and writes the report, 2014 was the best year for U.S. logistics since the start of the recession in 2007.
Overall, total U.S. business logistics costs rose to $1.45 trillion in 2014, a 3.1% increase from the previous year. Transportation costs rose 3.6% in 2014. Trucking, the largest component of transportation costs, rose 3% in 2014; the inter-city truck segment rose 2.7% and the local delivery segment was up 3.7%.
Moreover, the report indicates that barring any unforeseen events, 2015 should also experience similar growth – even in the face of certain adversaries including a weak first quarter caused by inclement weather, a stronger dollar that stemmed export activity, and problems caused by labor strife at West Coast ports.
The positive outlook has everything to do with consumer demand, according to the report. “The U.S. economy is on fairly solid ground” with unemployment falling, real net income and household net worth inching up, low to moderate inflation, and declining oil prices putting more money in Americans’ pocketbooks, Wilson wrote in the report. “We’re actually seeing some very sustained growth, in my opinion,” she added in remarks during her press conference in June.
That makes sense. With more cash on hand for consumers to spend, companies are selling more products and new home construction starts on the rise, ultimately translating into greater demand for transportation and logistics services.
Rates to Rise
The report also indicates that the continued anticipated freight growth will exacerbate capacity problems across the network, with chokepoints already being seen on the highways and rails. However, tightening capacity will help truckload carriers raise rates 5% to 8% this year.
“At some point, rates have to rise, and I think we’ll see that by the end of this year,” Wilson said at her press conference. Moreover, when rates do shift it will be swift, according to Wilson. She advises shippers to pay more attention to carriers’ capacity guarantees than to the rates they charge, and to work with carriers to optimize their equipment utilization. “Shippers that take both routes will stand the best chance of mitigating 2015 rate increases, because carriers would be more willing to keep rates steady if they know their equipment and drivers are being turned faster and more efficiently,” she said.
Within the railroad sector, according to the report, costs grew 6.5% as rail traffic reached its highest annual total on record. Costs for the water sector rose 8.9%, the second highest growth sector in 2014, and freight forwarder costs rose 5.4%. Air cargo sector costs declined 1.2% as competition from other modes kept rates down.
The fastest growing segment of the 3PL industry for the last several years has been domestic transportation, with 2014 seeing an increase of 20.5%.
Inventory carrying costs rose 2.1% 2014 as did total business inventory levels, pushing up related expenses, such as taxes, depreciation, obsolescence and insurance. “Inventories are at the highest point they have ever been in the 70 years they’ve been recorded,” Wilson said during her press conference. “That will put a lot of pressure on the retailers and wholesalers holding that inventory.”
The State of Logistics Report contains statistics and industry insights that help logistics service provides do their jobs better while preparing them for the business demands ahead. Roanoke Trade specializes in providing comprehensive insurance programs designed for logistics service providers and transportation intermediaries, including assisting with the procurement of the appropriate coverages and amounts to respond to today’s market and exposures. Please contact us at 1-800-ROANOKE (800-762-6653).
Source: Supply Chain Quarterly