Interest Rates and Warehousing Costs Will Rise

While presenting the 15th Annual State of Logistics Report, Rosalyn Wilson noted that it is amazing interest rates have remained as low as they have for as long as they have. They have to rise, and we'll see the effect between now and the next report in June 2005. The next day, press reports quoted Federal Reserve Chairman Alan Greenspan laying the foundation for just such a rise. But Wilson didn't stop there, she said warehousing costs will be going up as well as companies do more warehousing to cope with changes brought about by longer supply chains and variability in transit times.

With those two forward-looking statements, Wilson dug into the results of the Report which indicated that while logistics spending rose in 2003, logistics costs as a percentage of gross domestic product declined to its lowest point in the 15 years of the Report. Here's a quick look at how the numbers stacked up: Total business inventories $1.493 Trillion, up from $1.444 Trillion in 2002.

For-hire motor carriage $315 billion, up from $300 billion. Local motor carriage $167 billion, up from $162 billion. Rail $38 billion, up from $37 billion Domestic waterways $5 billion, down from $6 billion. International water $21 billion, unchanged from 2002. Domestic air $20 billion, unchanged from 2002. International air $8 billion, up from $7 billion. Total inventory carrying costs $300 billion, up from $298 billion.

Inventory carrying costs include interest, taxes, obsolescence, depreciation, insurance and warehousing. At $17 billion, interest charges were the lowest in the history of the report. This helped offset rising costs in the other areas.

As reported in Logistics Today, tight capacity in trucking has allowed motor carriers to pass on some of the most significant price increases in recent years. In addition, shippers have had to bear the cost of fuel surcharges. (Rail has been less successful in pushing rate increases or fuel surchages, Wilson notes, due in part to service levels. The market won't bear the cost increases they way it has in trucking.)

Further coverage of the State of Logistics Report will appear in the July edition of Logistics Today.

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