In 2022, U.S. business logistics costs, or what’s spent to maintain the nation’s logistics network humming, grew by an astounding 19.6% to a record $2.3 trillion, representing 9.1% of national gross domestic product, in response to the thirty fourth annual State of Logistics Report.
On a percentage basis, financial cost of inventory led the best way with a 90.2% increase, fueled by the Federal Reserve’s aggressive rate of interest increases. From the standpoint of modes, truckload costs rose 6.2% to $403.8 billion. Less-than-truckload costs rose 6.4% to $96.3 billion, while private or dedicated costs rose 6% to $95.8 billion.
Parcel costs rose to $217 billion, a 4.7% increase. Rail costs rose 17.6% to $99.2 billion. Maritime — which incorporates domestic U.S. — rose 18.4% to $36.4 billion, while airfreight rose 1.7% to $66.8 billion.
Coming off this performance, supply chain demand is more likely to remain stagnant or diminish for the rest of 2023. Still, any downturn within the U.S. economy is more likely to be mild and short lived, the report, unveiled in Indianapolis Tuesday, said.
This dramatic run-up has been excellent news for various providers.
“Logistics is a solutions-based discipline,” said Andy Moses, senior vp of Penske Logistics, the third-party logistics giant and presenter of the report back to the Council of Supply Chain Management Professionals. Moses appeared with other executives on a Thursday webinar to debate the report. “The necessities have never been greater and solutions’ needs from shippers are off the charts.”
A return to post-pandemic normalcy is allowing executives to seize the moment for what the report, in its theme, called a “great reset.” Based on the report, this involves a “revisiting of former arrangements, a few of them overtaken by recent events, a few of them cobbled together quite rapidly amid the confusions of the pandemic. It’s time to get clear about what’s working now and what’s needed to make sure resilience for an uncertain future.”
The period that the report covers, all of calendar 2022 and the early months of 2023, has been about “getting back in sync,” the report’s creator, global consulting firm Kearney, said. Among the many core features is a “shift amongst logistics executives from strictly transactional perspectives to a more strategic and holistic sense of the function’s role. Flexibility and resilience have overtaken cost as the important thing discussion points amongst supply chain leaders, in response to executives appearing on the webinar.
“What’s clear … is that the age of constructing supply chains just around cost-reduction considerations is over,” the report said. “A brand new value has taken center stage: resilience.”
The report cautioned, nevertheless, that the optimal ways of achieving resilience aren’t all the time present. For instance, an increasing fragmentation of demand signifies that massive distribution center footprints have gotten less profitable. Yet shippers often need a big footprint to make sure high levels of service and sufficient inventory levels, in response to the report.
Logistics leaders are responding by taking a more holistic and comprehensive view of their value chains. They’re diversifying their sourcing to avoid overreliance and to make sure ample workarounds within the case of sudden disruption, the report said.
“Our report shows that now’s the time to start pondering seriously and proactively on the subject of constructing strategic capability,” said Balika Sonthalia, senior partner at Kearney and the report’s co-author. “Although the market has swung back in shippers’ favor — to the detriment of carriers — we cannot emphasize enough the importance for all industry participants to start planning for geopolitical tensions, cybersecurity threats, climate change and related natural disasters, slowing e-commerce growth and global recessionary aspects.”
Below is a tally of a number of the primary sectors:
Air — Worldwide revenue will reach $150 billion in 2023. That is 25% below 2022, when the sector was still making the most of historically high rates. But it surely continues to be 50% higher than the pre-COVID revenue figures from 2019. A falloff in demand and a surge in belly capability as international passenger flights resumed led to say no. East-west rates dropped 23% during 2022. “Supply will exceed demand for a while,” said Robert Walpole, vp, cargo at Delta Air Lines.
Motor — Trucking saw little change in overall volume as shippers weighed concerns about inflation, rising rates of interest and overstocked inventories. At the identical time, capability increases led to a pointy drop in spot rates. Those changing dynamics have induced shippers, which turned toward dedicated fleets to deal with the capability challenges of the pandemic, to hunt a brand new balance of dedicated, private and one-way service.
Freight forwarding — The freight forwarding market is anticipated to grow 6.3% compounded per yr to $90.7 billion by 2031. The expansion derives from the continued expansion of e-commerce and the continuing pressure of shippers to trim costs and improve the efficiency of their supply chains. Digital forwarding is anticipated to grow annually by 23.1% on a compounded basis. The trend throughout the forwarding sector is toward more comprehensive offerings and thus more increased market consolidation.
Rail — Class I railroads saw operating income increase 8% yr over yr and total revenue rise by 14%, gains largely attributed to cost increases. Nonetheless, rising costs undermined operating ratios. The sector also suffered from service-related issues including poor velocity levels, increased terminal dwell and high-profile derailments.
Warehousing — As retailer demand slows, users should get well deals on pricing and availability for the balance of the yr. Even with available space increasing as a result of robust additional construction, firms are hesitant to occupy it as they struggle to eliminate excess inventory and use existing space more efficiently.
Parcel and last mile — The explosive growth in e-commerce resulting from the pandemic has begun to moderate as shippers have returned to stores. At the same time as the U.S. parcel market has grown to its largest size ever, its percentage of retail sales has begun to flatten. Volumes declined by 2% in 2022 but are expected to grow by 5% compounded annually over the following five years. One especially vibrant sector is same-day delivery, which is anticipated to grow to $7.9 billion in 2027, an 18.8% compound annual growth rate over 2022.
Way forward for Supply Chain
JUNE 21-22, 2023 • CLEVELAND, OH • IN-PERSON EVENT
The best minds within the transportation, logistics and provide chain industries will share insights, predict future trends and showcase emerging technology the FreightWaves way–with engaging discussions, rapid-fire demos, interactive sponsor kiosks and more.