CRESTING THE HILL

THE STATE OF LOGISTICS – 2019

On June 18, the Council of Supply Chain Management Professionals (CSCMP) released the “30th Annual State of Logistics Report”. This year’s report was entitled Cresting the Hill. The SOL report was launched in 1988, by the late Bob Delaney, one of the leading supply chain experts of that time; and after his death carried on by Rosalyn Wilson until 2015. Since that time, A.T. Kearney has performed the research and published the results. The complete report can be found at www.cscmp.org, and is free to members of the organization. Since non-members are charged $350, this week, I wanted to publish a brief summary of the report for those who might not have a chance to see it otherwise

2018 business logistics costs totaled $1.6 trillion, or 8% of Gross Distribution Product. Expenditures were up 11.4% y/y, and the percentage of GDP was slightly higher than last year’s 7.7%. At the same time, GDP grew about 2.9%. Expenses for every category were up, ranging from 6.4% for administration to 14.8% for inventory carrying costs.

2018                                              y/y %

Motor Carriers                                    $668.8 B                                            10.1

Rail                                                            88.4                                                12.9

Parcel                                                      104.9                                                 8.7

Airfreight                                                 76.5                                                  9.2

Water                                                       45.7                                                12.8

Pipeline                                                    53.0                                                12.7

Inventory Carrying Costs                    493.7                                                14.8

Administration                                     104.4                                                  6.4

 

ATK chose the title of this year’s report considering the fact that spending and consumer confidence have increased since end of 2018 declines, but an economic slowdown is expected as the year progresses. E Commerce is expected to continue its growth and Amazon continues to lead the pack in setting customer expectations. One of the more interesting developments involves Amazon’s relationship with its carriers. As Amazon continues to increase its own provider capability, the more traditional carriers such as FedEx and ABF have begun to curtail their activity with Amazon.

More motor carrier capacity is now available and rates are settling in at more normal levels.

Other key analyses in the report covered:

Parcel and last mile. Competition remains frenzied with Amazon continuing to set the bar for customer expectations.

Precision Railroading is driving rail profits, but in some cases, service has suffered. Improvements are needed, but hopefully, not at the expense of profits.

Warehousing rates continue to increase, but at a lower rate than in previous years. Demand is still high, as is the need for increasing automation. This is not only to gain operating efficiency but to compensate for the shortage of warehouse labor.

Logistics Service Providers are continuing to play a key strategic role. Technology is the important differentiating factor. According to the report, “despite the role’s importance, most outsourcing relationships remain at tactical levels rather than deep partnerships. “

No recent supply chain report would be complete without some mention of Blockchain.  According to ATK, the major hurdle is participation – not technology. The only way blockchain can succeed is through a large number of companies that are willing to collaborate. Last year, the report indicated that a lack of common standards was the major issue, but the current thinking is that blockchain can only be beneficial with a more open view toward sharing.

Finally, this year’s report mentioned 5G which appears to be the standard for the future. We will see major improvements in speeds of data transfer, AI-based tools, tracking, and other important supply chain functions.

This has been only a brief review of the 65-page report, and a full reading would be worthwhile. It is available at www.cscmp.org.

Written By: Clifford F. Lynch