Logistics cost in the U.S. is dropping

Filed in archive Market Overview on June 29, 2009

American transportation and logistics cost is dropping for the first time in a long time; to be exact after six years.

According to a report published by Council of Supply Chain Management Professionals (CSCMP), total spending on U.S. logistics dropped to $1.3 trillion last year, a decrease of $49 billion from 2007.

Logistics Management Magazine also reported that the annual respected benchmark report states the financial damage done to the sector by the ongoing recession. After rising by more than 50 percent the previous five years, business logistics costs fell to 9.4 percent of U.S. Gross Domestic Product last year. That is down from 10.1 percent in 2007. By way of comparison, that figure was 12.3 percent of GDP in 1985:

Transportation costs rose 2 percent, but that was not enough to offset the 13.2 percent decline in inventory carrying costs, primarily due to record-low interest rates last year. Transportation ($872 billion) now accounts for 6.1 percent of nominal GDP while inventory carrying costs ($420 billion) account for 2.9 percent of GDP.

Trucking, which accounts for 78 percent of transport by revenue and half of all business logistics cost, was particularly hard hit, rising just 1.3 percent compared with 4.4 percent for the other modes (rail, barge, air cargo, oil pipelines and forwarders).

For shippers, this has resulted in bargain transport rates, especially in trucking and ocean transport, according to Rosalyn Wilson, the long-time author of the SoL report.

As a result of the shakeout-more than 3,000 motor carriers ceased operations last year, taking out approximately 7 percent of truck capacity-supply chains are being redefined and processes changing.