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Mhlnews 3866 Logistics

Logistics Having Best Year Since Recession

June 23, 2015
The transportation sector grew by 3.6% in 2014, according to the 26th annual State of Logistics Report.

The transportation sector grew by 3.6% in 2014, according to the 26th annual State of Logistics Report. The report, issued by the Council of Supply Chain Management Professionals and presented by Penske Logistics, said the increase is due to stronger shipment volumes rather than higher rates.

The report points out that a solid economy with consistent new job creation and real net income moving up were factors. Added to this inflation was low-to-moderate and gas prices tumbled, providing consumers with additional buying power.

The increase in freight levels climbed as retailers replenished inventories. “Consumers had been the missing component in the recovery from the Great Recession, but in 2014 they began returning to the marketplace,” the report said.

U.S. business logistics costs rose to $1.45 trillion in 2014, a 3.1% increase from the previous year. However, the growth rate for logistics costs was lower than the U.S. gross domestic product (GDP), resulting in a slight decline in logistics as a percent of GDP from 8.4% to 8.3%.

Sector-Specific Results

Railroad sector costs grew 6.5% as rail traffic reached its highest annual total on record. The 4.5% increase in traffic volume brought the rail industry close to its pre-recession volumes. Total carloads increased 3.9%, hitting their highest total since 2006 due to increased shipments of grain and coal. Intermodal volume also increased 5.2%, surpassing 2013’s record total.

Costs for the water sector rose 8.9%, the second highest growth sector in 2014. Inland waterway traffic rebounded due to successful agricultural harvests, higher demand for coal and an expansion of petroleum transportation by barge. Shipments through the nation’s ports increased, with East Coast ports seeing the largest percentage of gains due to congestion and delays at West Coast ports caused by protracted labor issues.

Air cargo sector costs declined 1.2% as competition from other modes kept rates down; however, in 2014, a record $968 billion of high value merchandise was moved by air—$443.8 billion in exports and $543.3 in imports. 

Freight forwarder costs rose 5.4% in 2014, mainly due to an increase of 7.4% in the 3PL sector. The level of uncertainty in the supply chain has supported a 20.5% growth in the domestic transportation services segment.

Inventory-carrying costs rose 2.1% as inventories continued to climb. Interest rates remain well below pre-recession levels, but have been rising in recent months. The other components of carrying costs—taxes, depreciation, insurance and obsolescence—were up 1.2% due to inventory growth. The cost of warehousing rose 4.4% because of shrinking capacity, which lowered the national vacancy rate to 7%. In addition, warehousing costs are on the rise as companies respond to the shortage of workers by offering better pay and benefits.

Driver Shortage

The truck driver shortage remains a key concern for the logistics sector with the American Trucking Associations estimating the current shortage ranges from 35,000 to 40,000 drivers. A key indicator of this was the driver turnover rate, which was more than 95% on an annualized basis.

“Today’s market-leading companies use their supply chains to drive innovation and competitive advantage,” stated Marc Althen, president of Penske Logistics. “This in-turn drives demand for logistics providers. While demand for logistics is increasing, the industry faces a talent shortage and needs more logistics engineers, technology professionals, warehouse workers, and truck drivers to meet the needs of current and evolving freight fulfillment models businesses and consumers rely on for their goods and services.”