On June 23, 2015, the Council of Supply Chain Management Professionals (CSCMP) released the “State of Logistics Report,” which happens to be in its 26th year. For members of the CSCMP, the cost of the report is free, but it stands out at $295.00 for everyone else. This year’s version of the State of Logistics Report revealed that third-party logistics providers (3PLs) and those involved in the supply chain have experienced the greatest gain and economic turnaround since the Great Recession of nearly a decade ago. Some of the key points within the State of Logistics Report include the cost of logistics in the US, managing capacity, and addressing the trucker shortage. To gain a comprehensive overview of the economy, specifically, the logistics sector, take a look at how these three areas make up the most impressive aspects of the State of Logistics Report. Also, in the middle of this post, you can watch Rosalyn Wilson give highlights of the report.
Growth in Logistics
The transportation sector of the logistics industry grew by 3.6 percent last year. This is largely due to consistent new job creation, higher net income of individuals, and increasing household net worth, lower rates of inflation, and reduction in the cost of gas prices. As a result, the link between the cost of crude oil, gas prices, and consumer spending comes back to the forefront of the transportation industry. As consumers spend less on personal and work-related travel, they have more money to spend on other items, which strengthens the logistics industry, especially the trucking sector.
In 2014, the total cost of logistics rose to a staggering $1.45 billion; however, this is actually a slight drop in percentage of gross domestic product (GDP) from 8.4 percent in 2013 to 8.3 percent in 2014. Motor carrier transportation cost for 2014 was approximately $702 billion, and an additional $10 billion was found to exist within costs related to shipping. Logistics administration, which plays a key role in 3PLs, spent approximately $56 billion in 2014.
Throughout the State of Logistics Report, managing capacity becomes a focal point of many aspects of the logistics industry. In the first quarter of 2014 showed national warehouse occupancy stood at 93.3 percent. However, this same capacity could be measured at 96.8 percent in the Los Angeles area alone. Ultimately, less space to store goods, which haven’t been purchased and shipped yet, results in higher cost of storage. Higher expenses of storage follows suit to produce higher shipping costs and higher product costs to consumers. However, the capacity of US warehouses is not a finite concept.
Manufacturers and logistics providers have the ability to build more warehouses to meet the growing demand for additional storage space. Additionally, some ports have seen record-breaking amounts of shipments come into the US. Unfortunately, others have seen container traffic come to a dead halt, as was the case in Portland, Oregon. This sudden slippage of container traffic in the West Coast ports has a direct link to the labor issues in these respective states. More workers in demand of higher wages and uncompromising management have led to a “lock-out” of some areas. The solution to pay higher wages to such workers comes with a caveat: higher worker wages will continue to drive the cost of freight transportation higher. In contrast with supply chain management leaders’ predictions, air freight transport fell by 1.2 percent; although, air freight demand held a $968 billion high volume of items. With this in mind, it’s easy to see that more logistics entities will move towards more over-the-road transportation.
We have discussed the issues of the driver shortage previously, but the American Trucking Associations estimates the shortage to be as high as 40,000 drivers. One of the primary ways of attracting new drivers remains higher wages. Unfortunately, higher wages equate to higher cost of over-the-road transportation via trucks. Preliminary predictions for the coming rise in trucker demand forecast a jump of trucker demand by at least 25 percent within the next two years. One of the gravest concerns for the trucker shortage remains the driver turnover rate, which stands out at approximately 95 percent per year for small carriers and 96 percent for larger carriers. However, less than truckload (LTL) carriers have a favorable turnover rate of 11 percent
Although not listed within the State of Logistics Report, a report by SJ Consulting found that LTL carriers saw a jump of 5.1 percent in demand within the first quarter of 2015. The sudden jump in demand may be due to more carriers seeing LTL as the method of transport that involves the least amount of risk, especially considering the massive turnover rates for small and large carriers. This leads to the same ultimate problem: the trucker demand is only growing.
We can draw many different conclusions and base hundreds of predictions on the 2014 State of Logistics Report. However, the basic trends and information within the report allude to forthcoming changes within the logistics industry. The overall cost of the logistics industry has grown, but it fell by 0.1 percent as a measure of GDP. The demand for additional warehouse space will lead to faster-than-average creation of additional warehouses and higher wages for warehouse workers. Last, the nightmarish trucker shortage will lead to higher costs of transport and a greater focus on less than truckload carriers than alternative freight transport methods. Out of all areas in logistics, 3PLs have the greatest chance for success with the uncertainty and looming increase in costs on the horizon.