In years past, a drop in the ratio of logistics costs to gross domestic product (GDP) indicated an increase in logistics efficiency. Thus, the decline from 8.5 percent (2012) to 8.2 percent (2013) noted in this year's Annual "State of Logistics Report," produced by the Council of Supply Chain Management Professionals and presented by Penske Logistics, would normally be cause for optimism. But that's not the case this time. That's because the ratio's decline is a result not of an increase in efficiency but of lower borrowing costs and a drop in freight volumes.
The latter is a sign of huge changes afoot in the U.S. transportation sector. As the report points out, trucking capacity is shrinking at a time when shipments are moving away from truck to parcel carriers.
The explanation for the parcel upswing is that the U.S. economy is undergoing a structural shift caused by the development and expansion of e-commerce. After World War II the United States was the dominant manufacturer in the global economy. Raw materials moved to factories on railcars, and those plants shipped goods to retailers on trucks. In the 1980s, when U.S. manufacturers began outsourcing production to low-cost countries such as China, rail and truck were still the dominant modes of transportation. Goods arriving on the West Coast moved into the hinterland aboard intermodal trains, containers were delivered to distribution centers, and trucks completed the journey by delivering consumer goods to the local mall or shopping center.
In the 1990s a shift started to occur in the transportation industry as many products became lighter and smaller due to the miniaturization of components. I remember the late Ted Scherck, the former owner of the research firm The Colography Group, pointing out back then that this revolution in manufacturing was playing a key role in the expansion of parcel shipping and regional trucking.
Now, with the rapid rise of e-tailing, parcel shipping has grown at the expense of trucking. Manufacturers no longer truck as many of their goods to retail stores as they did in the past. Instead, consumers want merchandise ordered online to be delivered to their doorsteps. Initially, that was good news for the likes of FedEx, UPS, and the U.S. Postal Service. But with Amazon developing its own private fleet for home delivery, it will be interesting to watch whether other e-tailers follow suit, launching their own delivery services and either replacing or supplementing their current parcel carriers.
Given the latest developments in manufacturing technology, such as 3-D printing, it's likely that more smaller, lightweight goods will be custom-manufactured for personal consumption. Those one-of-a-kind products will have to be shipped direct to the consumer, and it's likely that they'll travel in a delivery van, not a tractor-trailer.
What all this means is that truck shipments should remain stable at best, while parcel volumes should grow. The much-bemoaned shrinking of trucking capacity is simply an alignment with market forces—in other words, it's a manifestation of economic equilibrium. The supply of trucks is adjusting to the current level of demand for trucking services in an economy where consumers want products delivered to their houses, not to a retail store.