Transportation Driving Up Production Costs In CPG Industry

The Grocery Manufacturers Association's (GMA) 2005 Logistics Survey found that transportation costs have increased 23% to an average of $1.69 per mile in the past three years. The increase is driving up production costs in the food, beverage and consumer products industry.

The survey, conducted by IBM Business in conjunction with GMA, reports that transportation now accounts for 62% of all logistics costs. The survey concludes that higher-than-anticipated fuel prices were a major contributing factor to the increasing cost of transportation.

In addition to fuel prices, the GMA survey reports that regulatory changes in the hours-of-service for truck drivers limiting the distance a truck driver can cover in a single day, resulted in a shortage of drivers to meet demand and overall shipping capacity dropped.

Additionally, survey respondents commented that more retailers are relying on manufacturers to address the challenges of moving freight.

Companies are shifting to different modes of transportation where possible, better utilizing trailers, taking advantage of continuous move opportunities and partnering with carriers to secure year-round capacity.

"Current margin pressures are severe," said Karen Butner, associate partner, IBM Institute for Business Value. "In an effort to improve customer service and reduce costs, we see many consumer products companies reducing the fixed costs and capital requirements of supply chain operations and moving to a more variable cost structure that can be controlled and managed 'on demand.'"

Grocery Manufacturers Association

IBM Business Solutions

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