Logistics costs drop during pandemic year

by Inside Logistics Online Staff

In 2020 U.S. business logistics costs dropped four percent to US$1.56 trillion, or 7.4 percent of 2020’s $20.94 trillion U.S. gross domestic product (GDP).

This is a key finding in this year’s State of Logistics Report, “Change of Plans”, produced for CSCMP. It delivers a snapshot of the American economy through the lens of the logistics sector in the overall supply chain.

The pandemic forced many global supply chains to screech to a halt and then start back up, again and again. As a result of a still ongoing pandemic and other disruptions, supply chains are being forced to continuously adapt.

“Logisticians came off the ropes of a bruising 2020 with a new appreciation that while resilience from the capabilities they had built got them through the main disruptive rounds of the pandemic, 2021 is confirming that the ability to change plans and execute under adversity has risen to be the top priority,” said Michael Zimmerman, a partner at Kearney, which produced the report for CSCMP.

New trends

Change will come from the trend of spreading procurement around, and the emphasis on ensuring there are supply options at the expense of lean and optimal. Safety stock is back, and more inventory will need to be carried.

One of the most obvious trends the report cites is e-commerce, which grew by 33 percent to $792 billion, and now represents 14 percent of all retail sales.

Operations managers are responding to the global crisis by adopting more visibility measures. Companies need knowledge to make quick decisions, and the control tower, as an example, serves as an information hub to enable better planning and reacting, the report said.

Sustainability is also becoming more important for the transportation sector. Consumers are considering environmental impacts in their purchasing decisions, while governments are instituting more stringent regulations.

Volatility

At the same time, trucking rates are volatile and high. The first half of 2021 saw the highest rates the market has ever experienced, according to the report. “Structural and cyclical factors will continue to constrain capacity, so shippers will need to adopt technology as a way to reduce costs through improved efficiency,” the report noted.

The pandemic and capacity crunch in trucking have also affected rail, according to the report. First, the decline in volumes during the height of the pandemic prompted a loss of carload business for the railroads. However, intermodal business has picked up as a result of the conditions in the trucking sector, as shippers look for new alternatives to over the road transport.