CSCMP's Supply Chain Quarterly
September 16, 2019
Perspective
Perspective

Not so fast

Comment
After a year where logistics costs jumped 11.4 percent, a slowing economy may be returning rates to more normal levels.

What a difference a year makes. Last year, carriers found themselves in control of the market for the first time in a while. A strong economy and the continued surge of e-commerce shipments kept demand high. The continuing lack of drivers, the effects of Hours of Service regulations, and the onset of electronic logging devicesall contributed to further constrain capacity. Carriers were able to select their customers and charge a premium for many of their services.

As a result of these forces, the Council of Supply Chain Management Professional's (CSCMP) 30th Annual "State of Logistics Report" found that overall U.S. business logistics costs jumped a whopping 11.4% in 2018 to a total of $1.64 trillion, or 8% of the U.S.'s $20.5 trillion gross domestic product. It further reports that all the components that make up U.S. business logistics costs—transportation costs, inventory carrying costs, and other administrative costs—rose in 2018.

The biggest increase occurred in the area of inventory carrying costs, as companies built up inventories in anticipation of still-unresolved trade tensions and roller-coaster tariff decisions. As a result, inventory levels rose 4.6% year-over-year in 2018, and inventory carrying costs climbed 14.8%. Meanwhile, transportation costs were up 10.4%, with every mode experiencing an increase. The low overall unemployment rate also made it harder to attract and retain truck drivers and warehouse workers, causing companies to increase wages. In many cases, carriers and warehouse providers passed these costs on to their customers.

But a turning point may be occurring. A slowing economy is starting to hit the brakes on runaway rates, according to the report, which is entitled "Cresting the Hill." Many economists expect demand to soften as the year closes, which should ease costs and increase capacity. Industry experts expect that shippers and carriers will work hard to collaborate more in efforts to keep overall costs down.

Which brings us to this: our annual State of Logistics issue. Every year we solicit industry experts from each area of the supply chain to provide their insights. We then deliver this analysis in easily digestible slices of trucking, rail, ocean, air freight, warehousing, third-party logistics, and technology.

Regardless of whether you are a shipper who needs to move goods or a carrier providing those moves, we hope that the knowledge you gain heremay help you plan for the journey ahead in 2020 and beyond.

David Maloney is editorial director of CSCMP's Supply Chain Quarterly.

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