CSCMP's State of Logistics Report 2019 is the single best annual snapshot of where logistics stands in the US. This is the 30th issue. This year's report was written by AT Kearney and presented by Penske.
The biggest takeaway every year focuses on whether overall logistics costs are going up or going down. The answer? Costs have increased. US logistics costs rose 11.4% to reach $1.64 trillion, or 8% of gross domestic product (GDP). Supply chain costs are rising due to a few reasons:
- The growth of ecommerce. Online purchasing increased by 14.2% last year. Fulfillment costs are higher for each picking than for cases and pallets. As ARC has noted, this has driven the autonomous mobile robot market to grow explosively.
- As brick and mortar retailers attempt to compete with Amazon, they find they need to build more and smaller warehouses. Warehouse rents are continuing to increase, but at a slower rate than they have over the last six years.
- The truck fleet had an extremely high utilization which drove up rates. Hours of service regulations has driven smaller trucking firms out of the market. The good news is rates peaked in the middle of 2018 and are beginning to drift down toward more "normal" levels.
- A tight US labor market is driving higher wages for truck drivers and warehouse workers. Attracting and retaining labor is one of the biggest challenges in logistics.
- Uncertainty over tariffs causes companies to build up inventory buffers. Ttranspacific carriers benefitted from China trade tensions. Their expanded 2018 peak season saw some rates double.
Overall, logistics costs are driven in large part by the strength of the economy. The authors note that economic growth is forecasted to shrink and that consumer confidence indicators suggest persistent concerns.
Other modal and service provider trends were also noted in the report.
- Precision scheduled railroading has increased profitability in rail. But this has caused service issues. And as I recently wrote, shippers are also complaining about illogical, arbitrary and unfair fines imposed in the name of precision scheduled railroading.
- Despite near-term weakness, e-commerce and the drive for quicker deliveries will be good for the air freight industry. The industry has also made strides in digitization to eliminate paper. The good news for shippers is that online freight exchanges offer unprecedented transparency into rates while carriers are now starting to price dynamically.
- Pipeline capacity is beginning to catch up to strong growth in oil and gas production. Significant capacity was added in 2018 and more is expected in 2019. In times of great change, 3PL's expertize can be very helpful to their shippers. But most shipper-3PL relationships remain tactical rather than strategic.
The report also commented on some technology trends.
- The value of blockchain cannot be realized until there is a robust network of companies willing to adopt a joint solution. The big hurdle is not technology but participation. The report mirrors ARC's view that there has been entirely too much blockchain hype.
- 5G holds great potential to help reduce logistics costs. Over the next three years, 5G will improve supply chain visibility. Transportation execution technologies will benefit from increased speeds, decreased latency, and the ability to increase the number of devices on the network. Over the longer term, 5G will improve the way robotics operate.
The State of Logistics Report remains a must read.
