Worley Blog

THE STATE OF LOGISTICS- 2019/2020

Posted on: July 20th, 2020 by Clifford F. Lynch

 

On June 23, the Council of Logistics Management Professionals (CSCMP) released the “31st Annual State of Logistics “report. This year’s report was entitled “Resilience Tested”, a reflection on the current conditions surrounding the Covid-19 pandemic 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 2016. 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 the members of the organization. Since non-members are charged $295 for the report, I wanted to publish a brief summary for those who might not see it.

As usual, the report summarized the costs and trends for last year; but the major theme centered around what is happening, and/or might happen because of the pandemic. 2019 business logistics costs totaled $1.63 trillion, or 7.6% of the Gross Distribution Product of $21.43 trillion. Expenditures were up .6% y/y and the percentage of GDP was down from last year’s 7.9%. At the same time GDP grew about 2.3%. Expenses for some categories were up, but there were some significant decreases, as well.

2019                                             y/y %

Motor Carriers                                    $680.4 B                                              3.0

Rail                                                            83.9                                                -1.4

Parcel                                                      114.4                                                 8.5

Airfreight                                                 75.2                                                 -9.7

Water                                                       47.9                                                 -3.1

Pipeline                                                    57.4                                                  9.5

Inventory Carrying Costs                    454. 6                                               – 4.6

Administration                                      116.1                                                  5.0

 

In 2019, Motor Carrier overcapacity resulted in lower rates, Shippers regained buying power, making up for the past few years when carriers were on the plus side of the equation.

 

Rail volume fell by 1.4% last year, due primarily to a decline in coal and intermodal shipments. While in recent years, rail carriers have increased their reliance on technology and focused more on productivity, ATK suggests they need a “growth model”.

 

The Parcel sector grew 8.5% in 2019. Most of these expenditures were in support of increasing E Commerce volumes, up 15% in 2019, to $600 billion. Stay at home buying during the pandemic continues to drive these figures upward.

 

Airfreight was down 9.7%. The industry declined in 2019, as automakers (large airfreight shippers) cut back on production. This has been compounded by the pandemic as business has declined even further.

 

Water shipments were down in 2019, as shippers relied on inventories built in late 2018, to avoid new tariffs. There continues to be overcapacity as well. Even so, new container ships are being ordered.

 

2019 Pipeline expenses were up as a result of increases in domestic oil and gas production.

 

Inventory carrying costs were down 4.6%, in spite of a 6.6% increase in storage costs as warehouse capacity remained tight. This expense was more than offset however, by a 12.7% decrease in weighted average cost of capital.

 

Administrative costs were up, reflecting higher wages and a tightened labor market.

 

As far as 2020 is concerned, there is continuing uncertainty which no doubt will exist for the foreseeable future. Two thoughts stand out, however. Covid-19 has called attention to the value of logistics to the entire economy, as firms have had to adapt to rapidly changing conditions. Secondly, the report points out that we no longer can subscribe to a business model based on efficiency and cost, but must focus on resilience and flexibility in our supply chains. Practices and procedures of the past have become obsolete.

 

The ATK report was developed during an almost frantic period of supply chain management, and since the publication, conditions have continued to change. Already, the “reopening of the economy” has resulted in new cases of the virus, which may present even more logistics challenges. One thing that will not change however, is the need for resilience that ATK has emphasized in this report.