If you are a logistics manager or supply chain executive, it is vital you are aware of the logistics trends affecting your department in order to stay progressive, innovative, and remain proactive in your approach to mitigate increased costs each and every year. Additionally, as a logistics professional, you undoubtedly have little time each day to read and stay up to date on these logistics trends. Fortunately, for now the 24th year, Penske Logistics, the Council of Supply Chain Management Professionals, and more specifically, Rosalyn Wilson, put out the “State Of Logistics” report.
General Observations of Logistics Trends from the CSCMP’s and Rosalyn Wilson’s “State of Logistics” Report
According to Rosalyn Wilson, this year’s report, which primarily covers the previous year, 2012, but also mentions briefly some logistics trends and activities in 2013, is strikingly similar to the previous two year’s “State of Logistics” report, concluding a common theme in the last three years of slow growth as the “new normal.” Rosalyn goes on to state she foresees the next 3 to 4 years also experiencing slow growth, but sustainable growth.
The “new normal” is characterized by slow growth, namely GDP growth hovering between 2.5 to 4 percent, higher unemployment levels, higher healthcare costs for businesses and less reliable or predictable freight service as volumes rise.
State of Logistics Overview Video Featuring Rosalyn Wilson
This year’s report was designed to measure the cost of moving goods in the economy and the results for 2012 looked very similar to 2011 including reports on trucking, rail, air, ocean, inland waterways as well as pipelines. This index of this measure of cost of moving goods increased by 3% which is half of last year, due to virtually no growth in volume. Rosalyn raises the point that you would think with the trucking industry is at capacity, 97% of utilization, that carriers would be able to raise their rates, but in this economy, carriers are not able to do so as shippers can afford to pay more, and there is fear that shippers will just find something else.
In Rosalyn’s “State of Logistics” report covering several logistics trends such as an overview of the economy during the past year, the logistics industry’s key trends, and total U.S. logistics costs for 2012. The report also offers findings in looking forward, inventory-risk trends, manufacturing trends, as well as trucking, rail, water, and air trends. We will focus on some key bullet points in general, as well as the looking forward, trucking, and manufacturing trends below. If you’d like to buy a copy of the report from the Council of Supply Chain Management Professionals, you can go to their periodicals section on the CSCMP website.
Logistics Trends Key Findings for the 2012 “State of Logistics” Report
2012 was characterized by a lack of sustained growth in the economy and by extension, the freight sector.
- Parts of the economy were made lean or right-sized such as truck and cargo jet fleets and retail inventory levels; supply chain practices were adapted to be even more mode-agnostic, making best use of the available capacity, reducing costs and still increasing productivity.
- Entire industries were expected to remake themselves following a less labor-intensive model with increased use of technology to improve quality and cut costs.
- Logistics costs as a percentage of GDP in the U.S. compares quite favorably to that of trading partners. Slow economic growth has kept the percentage lower than normal, but the supply chain sector has made great strides in productivity, asset utilization and inventory management in the last three years.
- Total U.S. business logistics costs rose in 2012 to $1.33 trillion, a 3.4 percent increase from the previous year, remaining at 8.5 percent of the U.S. GDP.
- The trucking industry is facing a serious capacity problem even in this lower volume environment and will have difficulty meeting demand with new rules such as the U.S. Department of Transportation’s new Federal Motor Carrier Safety Administration (FMCSA) Hours of Service (HOS) regulation going into effect on July 1, 2013, affecting driver availability.
- Accumulated inventories across manufacturing, wholesale and retail have the potential to become a drag on the economy.
- Intermodal will continue to grow and is becoming the most efficient way to move goods in the “new normal.”
- Ocean carriers will continue to be plagued with overcapacity and rate problems due to optimistic economic forecasts that led to companies expanding their fleets.
- According to Armstrong and Associates, revenues for the 3PL sector rose 5.9 percent in 2012 and as a result, companies are looking to outsource logistics. The domestic transportation management industry was the fastest growing economic sector with gross revenues up 9.2 percent.
What is the Outlook on Logistics Trends for the Future?
- 2013 is following a pattern similar to the last two years: mixed economic signals and unbalanced performance.
- Economy: Expect continued, slow growth with the GDP hovering between 2.5 to 4 percent.
- While hiring is growing and the unemployment rate is slowly dropping, expect higher or stagnant unemployment rates due to discouraged workers re-entering the market place as the economy improves. Jobs are not keeping up with population growth.
- Although intermodal is on the rise, there will not be a shift to consolidate logistics services across trucking, rail, ocean sectors, etc. due to potential government monopoly regulations.
Manufacturing Trends Realized in 2012 and Notes on 2013
We wrote extensively in a two part series on manufacturing issues and manufacturing industry trends that are affecting manufacturers currently, but here are the key findings on Manufacturing Trends Rosalyn found for 2012 and the early part of 2013:
- In 2012, we saw strengths in the manufacturing industry and consumers/businesses were optimistic. However in the fourth quarter, the industry started to take a downturn which can be attributed to effects of the fiscal cliff. Even with the fiscal resolution, the industry has not rebounded in 2013.
- Manufacturing in 2011-2013 looked like it was expanding because it was above the Purchasing Managers Index (PMI) threshold, but it was actually declining and in May of 2013, dropped below the threshold.
- One of the leading manufacturing sectors for U.S. exports was motor vehicles and parts, up by 10.1 percent from 2011. Capital goods and industrial supplies are the leading export categories.
- Retail sales grew by 5.2 percent, but end-of-year holiday sales were much lower than expected.
Trucking Trends Realized in 2012 and an Outlook on Hours Of Service in 2013
As most in the transportation industry are aware of, the New Hours of Service rules, which we explained in a previous blog post, went into affect, and then also was confirmed after appeal, on July 1st of 2013, Rosalyn spoke about how trucking trends were realized in 2012 and touches on the New HOS for her trucking findings within the logistics trends publication:
- Truck transportation costs rose only 2.9 percent in 2012. With utilization rates at 95 to 97 percent, expected capacity pressures will push rates up quickly.
- The trucking industry is maintaining a tenuous balance between supply and demand, a balance that will likely be disrupted when regulatory issues, such as the U.S. Department of Transportation’s new Federal Motor Carrier Safety Administration (FMCSA) Hours of Service (HOS) rule, will reduce existing drivers’ productivity, leading to a capacity contraction.
- Currently, the industry is short about 30,000 drivers. The HOS regulation that went into effect July 1, could create a net of 2 to 5 percent reduction in industry productivity, projecting a need for another 100,000 drivers, without an increase in shipping volume.
- The U.S. Labor Department forecasts that truck drivers will account for 43 percent of the growth in logistics jobs in the coming years.
- Truck sales gained strength, but have not reached replacement levels; used truck prices soared and the supply has dwindled.
Rosalyn Wilson’s logistics trends covered in this year’s “State of Logistics” report is 50 pages long, and if you are in transportation, freight management, supply chain, or work as a logistics executive, we highly encourage you to pick up a copy and stay as informed as possible. As they say, “knowledge is power”, and when looking through the myriad of data available, it’s helpful to have an expert guide you in to knowing what metrics you should look at for key findings. What logistics trends do you expect to see on next year’s report? An upswing in the economy and manufacturing? Capacity crunches as carriers and transportation professional adjust to the new Hours of Service? Weigh in below by leaving your comment!