US business logistics costs rise in slow economic recovery

Monday, 18 June 2012 00:00 - - {{hitsCtrl.values.hits}}

Reuters: US businesses paid more to manage and transport goods in 2011 as truckers and railroads charged higher rates to cover their rising expenses, but the uneven economy has contained volume and rate increases, according to a study issued recently.

“The longer the recovery takes without solid sustainable economic growth, the more reticent businesses become about hiring and investment,” said Rosalyn Wilson, a senior business analyst at engineering consultant Delcan Corp.

Total US business logistics costs rose 6.6 per cent to $1.28 trillion in 2011, after jumping 10.4 per cent the prior year, according to the Council of Supply Chain Management Professionals (CSCMP) annual state of logistics report. Transportation expenses rose because shippers increased rates and carrying costs mounted on higher wholesale and manufacturing inventories, the study found.

Wilson authored the study funded by Penske Logistics.

Logistics costs most recently peaked at $1.39 trillion in 2007 before eroding during the recession to $1.1 trillion in 2009.

“Transportation costs had primarily rate-based increases because we had very little volume increase in 2011,” Wilson said. “I don’t think any of this is getting out of control.”

For many transportation companies looking to cover rising commodities and labor costs - particularly trucking companies that move more than three-quarters of freight in the United States - “they are in a position of do or die, they’ve had to push (rate increases) through or go bankrupt.”

Business logistics as a percentage of US Gross Domestic Product last year rose 2.6 per cent to 8.6 per cent, the study found. During the recession, these costs represented just under 8 per cent of GDP.

A level at or slightly above 9 per cent would be optimal, Wilson said. The current ratio “is anemic” and shows that “we didn’t have activity in the sector, not that we were more efficient.”

The trucking industry faces an ongoing squeeze, having to pay higher wages to attract and retain drivers, and replacing older trucks with new, more expensive models.

Regulations that closely track and publish driver safety records, and a reduction in allowable driving hours, are also intensifying capacity difficulties in the industry.

More trucking companies are partnering with railroads for intermodal shipping to temper the labour and equipment cost issues, the study said.

Intermodal refers to the shipment of goods in containers that can move from one form of transportation to another, such as from truck to rail.

“I urge everyone to begin making contingency plans for the day you cannot get a truck,” Wilson said. “The railroads are standing by with a great offer and have the capacity to take up the slack.”