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Blog: 2012 Logistic Costs Mirror Sluggish Economy

By James A. Cooke

If electrical distributors feel as if they’re running in place with their logistics costs, then the data in this year’s State of Logistics Report should come as no surprise. The 2013 edition of the report showed that logistics costs, as a percentage of the overall U.S. economy, stayed the same the past two years. In 2011 logistics costs were 8.5 percent of the nation’s gross domestic product (GDP) and that ratio stayed exactly the same in 2012. That ratio provides macro-economic evidence that expenditures for warehousing and transporting goods and materials are running in parallel with the overall sluggish economy.

Regarded as the “bluebook” for the U.S. supply chain because of its transportation and warehousing data, the State of Logistics Report goes back 24 years. The report this year was authored by economist Rosalyn Wilson, published by the Council of Supply Chain Management Professionals (CSCMP) and sponsored by Penske.

Outlays in 2012 on logistics totaled $1.33 trillion in a $15.6 trillion U.S. economy. Logistics outlays are calculated as the sum of transportation expenditures, carrying costs for inventory, and administrative costs.

Inventory carrying costs as percentage of GDP – 2.8 percent – stayed the same in 2012 as they did the prior year. Inventory carrying costs include charges for taxes, obsolescence, depreciation, insurance, warehousing ($130 billion), and interest on inventory. In regards to the interest charge, although inventory levels went up slightly to $2.3 trillion, the commercial paper rate fell from .13 to a historic low of .11 as the Federal Reserve kept borrowing costs down. Because interest charges are calculated by multiplying inventory value by the commercial paper rate, interest charges of $3 billion in 2012 were about the same as 2011. By the way, the average value of distributor’s inventory in the United States for 2012 was $583 billion compared to $560 billion in 2011.

The other major component of U.S. logistics outlays in the report’s calculations is transportation expenditures. Those costs totaled $846 billion in 2012, a 3 percent increase over the $821 billion the prior year. Across all modes of transportation costs rose modestly due to weak and inconsistent shipment volumes and strong pressure to restrain freight rates.

Trucking expenditures make up the biggest component of transportation costs. Last year U.S. companies spent $647 billion on motor carriers to move their products and materials. Expenditures on railroads – the second largest category – amounted to $72 billion last year. Air transport accounted for $33 billion, forwarders $37 billion and water movements $35 billion.

As for the future, the report noted that the U.S. economy is expected to witness slow growth – a rate of 3 percent or lower by most forecasts for the next few years. Although a slow growth rate should translate into weak demand for transportation and warehousing, capacity is expected to tighten for trucking due to particular conditions in that industry sector. As more truck drivers retire from their ranks and motor carriers cut back on routes, there could be a shortage of trucks available for shipments, resulting in rate hikes that would outpace other modes.

James Cooke is the editor of CSCMP’s Supply Chain Quarterly magazine, the premiere journal of global thought leadership for supply chain professionals. He has been writing and reporting on the best practices in supply chains for more than 30 years.

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