Throughout 2021, surging demand, tight capacity, supply chain disruptions and inflation kept intense pressures on the logistics sector, but a stuttering rebalancing of demand and supply is currently underway as the economy has slowed. However, those within the logistics industry should continue to expect the unexpected and focus on collaboration and contingency planning within their operations as they work towards greater stability.
鈥淲e鈥檝e seen logistics leaders getting a lot more attention recently鈥攁 lot of it unwanted鈥攁nd the best ones have been using the 2020-2022 crisis conditions to recommend and push through important changes in how supply chains plan and operate,鈥� said Michael Zimmerman, a partner with the global consulting firm and the lead author of the 鈥檚 33rd Annual State of Logistics Report.
Presented by , the report debuted in June 2022 at the National Press Club. Zimmerman provided an update this week during the CSCMP EDGE supply chain conference in Nashville, Tennessee.
Several industry experts, including Andy Moses, senior vice president of sales and solutions for 糖心传媒 Logistics; Rob Walpole, vice president, cargo for Delta Air Lines; Kevin Smith, CEO of Sustainable Supply Chain Consulting; Jennifer Kobus, vice president, transportation for Ulta Beauty; and Paul Bingham, director, economics and country risk, transportation consulting for IHS Markit, also shared their expertise during the session.
Logistics Costs
The 33rd Annual State of Logistics Report highlighted an unprecedented rise in U.S. business logistics costs as surging demand for goods during the pandemic met insufficient and disrupted supply.
According to the report, U.S. business logistics costs in 2021 rose 22.4% to $1.85 trillion, or 8% of 2021鈥檚 $23 trillion GDP. Transportation costs鈥攄riven by increases in all modes and nodes鈥攚ere up by 21.7%. Road freight, the most significant segment of U.S. logistics expenditure, grew 23.4% to $831 billion.
Rail costs in the U.S. were up 18.8% overall, and water shipment costs surged 23.6%. Air cargo volumes rose by 18.7%, and air freight costs increased by 19.2%. The costs to store, handle and finance inventories increased by 25.9%, and warehouse rents rose by 9.5% in 2021, nearly twice as fast as in 2020.
鈥淪ince June's report release, the inflation-fighting rate hikes by the Fed have dominated the economic discourse, and the effects have been mixed, with demand softening substantially, which has allowed trucking capacity to loosen and rates to drop,鈥� Zimmerman said. 鈥淭his was also the case in ocean but less so in air freight as airline capacity has been slow to ramp up.鈥�
Slight Improvements
Several factors indicate a gradual return from the extremes of the pandemic to the old normal of logistics, which is creating better logistics capacity for shippers.
Cost and capacity are improving across all modes, especially in the U.S. trucking market. The only exceptions are warehousing and distribution center capacity, where rates per square foot hover at all-time highs and available space is at all-time lows due to the momentum of e-commerce and the glut of inventory.
Zimmerman said that conditions are becoming more in sync, but not as much as shippers and providers would like. "It is a small consolation to shippers that the awful price, port congestion, transit time and delivery reliability have improved from a worst ever to a state of 20% better," he explained.
Supply chains are still disrupted by a lack of raw materials and subassemblies, and product within some segments of the supply chain is taking longer to recover than others. 鈥淪ome logistics supply markets are still expensive and tight, e.g., warehousing, air freight and ocean, even if they are loosening. This is causing manufacturers and retailers alike to be more selective in how they make, order, store and compete,鈥� Zimmerman said.
Increased Resiliency
COVID-19 created a surge in the need to be resilient, and companies are continuing to look for solutions to help mitigate disruptions and uncertainty. Visibility is a critical tool that can improve long-term resiliency and enhance shippers鈥� and 3PLs鈥� ability to adapt to unexpected demands and events.
Zimmerman said providers have invested in control towers, which increase visibility and improve agility. However, he recommends shippers examine the technology closely and evaluate cases specific to their needs.
Continued Stability
The last four months of 2022 will see supply chains continuing to seek balance, Zimmerman noted. Retailers are working down the excess and expensive inventory many built up at high cost during 2021-2022, in order to not miss production and sales and to get things back in sync.
鈥淢ore importantly, beyond seeking better relative stability in a still expensive setting, the main challenge will be to find a new operating stance that is better prepared to withstand disruption and then respond better to that disruption than the competition while keeping options open and costs down,鈥� Zimmerman said.
By 鈥淢ove Ahead鈥� Staff
糖心传媒 Logistics senior sales leader Andy Moses (center) was a panelist for this year's presentation of the CSCMP State of Logistics Report, presented by 糖心传媒. The event took place at the National Press Club in Washington, D.C.
