Historians might well point to 2005 as the year that supply chain management came of age, but that distinction has nothing to do with the increasing sophistication of the tools or a wholesale agreement that performance metrics matter. It was 2005 when transportation costs rose 15.2%, to $583 billion. The amount spent on diesel fuel alone in the U.S. jumped from $65.9 billion in 2004 to $87.7 billion in 2005 -- a huge 33% increase.
Supply chain professionals at manufacturing companies large and small are trying to compensate by adopting strategies that will help reduce their logistics spending, or at least keep their costs under control. The total logistics cost in the U.S. last year was $1.1 trillion, or 9.5% of the current gross domestic product.
If current projections hold, diesel fuel will cost the U.S. trucking industry $94 billion in 2006, a somewhat more modest 7% increase. Those costs, of course, end up being passed along one way or another to the manufacturers and the retailers who hire those trucks.
According to transportation consultant Rosalyn Wilson, who prepares the annual State of Logistics Report for the Council of Supply Chain Management Professionals, the task of managing a company's supply chain has become more critical than ever because the growth in business logistics costs in the U.S. has been unparalleled over the past year. "Given still-soaring fuel costs, continued capacity pressures, record levels of truck driver shortages and turnover, and the expected costs of meeting security requirements, logistics costs have continued to rise into the first several quarters of 2006," Wilson notes.
What A Trillion Dollars Can Buy
|Warehousing And Inventory Costs|
(all amounts in billions)
|Taxes, Obsolescence, Depreciation, Insurance||245|
|Administrative and Shipper-related Costs||54|
|Total Logistics Cost||1,183|
The downside to that growth, however, is the severe strain it's putting on our transportation infrastructure. "The increase in international trade has placed mounting pressure on the initial points of entry -- the gateways, ports, airports and border crossings -- creating bottlenecks for the movement of freight," Wilson cautions. In addition, "the successful movement of freight is very dependent on what happens beyond the ports along the nation's highways, inland waterways, railroads, warehouses and distribution centers, container yards and terminal facilities.
Strategies On Becoming A Carrier's Preferred Customer
- Improvements in highway and rail port connectors
- More dedicated freight corridors with grade separations or truck-only lanes
- Become more efficient in the use of terminals and freight hubs
- Relocate and diversify distribution centers
- Encourage the use of alternative landing points
- Build up the local infrastructure.