The report, written by transportation consultant Rosalyn Wilson, tracked and measured all costs associated with moving freight through the U.S. supply chain since 1988, presenting an overview of the economy during the past year, the logistics industry's key trends, and total U.S. logistics costs for 2012. This year's report suggests that the U.S. is no longer in recovery mode, but rather in the "new normal" for the economy and supply chain industry as a whole. 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.
Key findings 2012
"¢ 2012 can be 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.
"¢ 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.
Forward looking trends
"¢ 2013 is following a pattern similar to the last two years: mixed economic signals and unbalanced performance.
− 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.
"¢ Inventory levels surpassed the previous high point established at the height of the recession. The year-end inventory figure was 6.2 percent higher than the former high point.
"¢ The average investment in all business inventories (agriculture, mining, construction, services, manufacturing, wholesale and retail trade) increased 3.9 percent over 2011 to almost $2.3tr in 2012.
"¢ All business inventories rose in three out of four quarters in 2012, falling only during the second quarter.
"¢ Inventory management techniques are improving; these practices are likely to be some of the major learnings coming out of the very trying period we have endured for almost five years.
"¢ The cost of warehousing was up 7.6 percent in 2012.
"¢ 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 holidays sales were much lower than expected.
"¢ 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.
"¢ Currently, the industry is short about 30,000 drivers. The HOS regulation that goes into effect July 1, 2013, could create a net of 2-percent 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.
"¢ The railroad industry has continued to remain strong, despite the recession, and this particular industry is poised to take business from struggling transportation sectors, including trucks and ocean carriers.
"¢ The cost for rail transportation was up 4.9 percent in 2012, down from an increase of more than 16 percent in 2011.
"¢ Intermodal volume was the second highest on record which benefited rail, the heart of intermodal.
"¢ While still experiencing slow growth, U.S. ports' cargo volumes did not expand as much in 2012.
"¢ Global volumes are down, ocean carriers have taken hits financially; rates have not stabilized and announced rate hikes have been hard to maintain with competitors willing to undercut prices.
"¢ Costs for the water sector declined 0.9 percent in 2012.
"¢ Great Lakes shipping showed signs of recovery in 2012, after several slow years.
"¢ Maritime infrastructure, especially inland waterways, is in dire need of investment and Congress is formulating a comprehensive waterways package to address the issue.
"¢ The inland waterway transportation system was disrupted frequently last year, with river flow problems affecting navigation. The severe drought reduced river levels, which resulted in temporary closures for emergency dredging.
"¢ Domestic air cargo ton-miles were up 2 percent and international were down 3.9 percent, for a total drop of 3.6 percent.
"¢ Jet fuel prices were up 2.9 percent.
"¢ The growth of cargo space in passenger jet bellies and their relative cost advantage is putting significant pressure on all cargo jets.
"¢ China's Purchasing Managers Index rose after months of decline; however close examination shows only domestic manufacturing is up, while new export orders and backlogs are still contracting.
"¢ We are not seeing an increase in consumer spending, as household disposable incomes are decreasing and personal savings are going up.
The full report is available from CSCMP.
Source: CSCMP, Penske Logistics
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