Logistics costs up over 11 percent in 2018

by Inside Logistics Online Staff

LOMBARD, Illinois – Amid a booming economy, United States Business Logistics Costs (USBLC) rose 11.4 percent to reach US$1.64 trillion, or eight percent of 2018’s $20.5 trillion U.S. gross domestic product (GDP).

Supply chain capacity is tight enough that a number of major companies have reported in their Securities and Exchange Commission (SEC) filings that they exceeded their 2018 supply chain budget spending.

These are just two of the key findings in the annual State of Logistics Report produced by the Council of Supply Chain Management Professionals (CSCMP). This is the 30th annual publication, which is written by A.T. Kearney and sponsored by Penske Logistics.

“The logistics industry is at a new crossroads,” explained Michael Zimmerman, partner with A.T. Kearney and co-author of the 2019 report.

“It has overcome a tough and exhausting year. Now, demand has softened, and growth is in doubt—but not to the point where a steep decline is visible, a context we summarize in the report’s title, ‘Cresting the Hill.’”

Costs are climbing for a number of reasons. Online purchasing increased by 14.2 percent last year in the U.S., forcing supply chain revisions. The need for smaller, more costly warehouses has spiked.

As well, extremely high utilization of existing truck fleets limits available freight capacity and drives up rates.

Increasing government regulations on driver hours-of-service is causing smaller trucking firms to quit operations, consolidate or be acquired by larger transportation companies.

Finally, a tight labour market and higher wages for truck drivers and warehouse workers means attracting and retaining labour in general remains challenging for transportation and logistics companies.

On the positive side, the report finds the conditions that are driving up costs are also spurring innovation. Automated trucks and automated warehouses are seeing rapid development and adoption across the distribution sector. Vehicle electrification will lead the way to a more sustainable transportation network.

The upgrade to a 5G communications network is on the horizon, which will improve logistics operations, planning and management, as well as high-security encryption.