For U.S. manufacturers, there's a basic truth that even the best of best practices can't prevent: Whenever business is up, so are transportation and logistics costs. So when Rosalyn Wilson, senior business analyst with Parsons, says that 2014 was "the best year for the supply chain industry since the Great Recession," she's referring to transportation carriers and third-party logistics providers (3PLs). U.S. companies (primarily manufacturers and retailers, or in logistics parlance, "shippers") spent $1.45 billion on logistics costs last year, a record high for the 21st Century and an increase of 3.1% from 2013.
All told, while logistics costs were up $43.4 billion over 2013, they were actually down slightly as a percent of the U.S. gross domestic product -- from 8.4% to 8.3%. And those costs were pretty evenly spread throughout all areas of logistics. With the lone exception of air cargo, every other mode of transportation saw cost increases in 2014. According to Wilson's analysis, compiled for the Council of Supply Chain Management Professionals' annual State of Logistics Report, trucking -- the largest component of transportation costs -- was up 3.0% last year. Although the number of truck shipments was down somewhat, total truck tonnage was up 3.5%. "This supports the anecdotal evidence that suggests loads are heavier and more trucks are moving at or near full capacity," Wilson notes.
Truck capacity, as she notes, has grown "extremely tight." Not only aren't there enough trucks (especially drayage trucks) on the road, but there aren't enough drivers, either. According to estimates from the American Trucking Associations, current capacity needs for the marketplace could support another 35,000-40,000 drivers, but few can be found. And with capacity being squeezed, rates will inevitably climb, particularly in the second half of 2015.
"A trucking shortage allows carriers to be selective in whom they do business with," Wilson cautions. "Shippers who hold drivers for long periods of time waiting to load or unload, or who do not treat their drivers well, will fall to the bottom. Maximum equipment utilization, quicker turns and fewer empties go right to the bottom line. Shippers willing to work with carriers to accomplish this will fare better than those who neglect these issues."
And it's not just a lack of drivers that is leading to higher logistics costs. An overall talent shortage continues to be one of the biggest concerns for managers of every area of the supply chain.
"While demand for logistics is increasing," observes Marc Althen, president of Penske Logistics, "the industry faces a talent shortage and needs more logistics engineers, technology professionals, warehouse workers and truck drivers to meet the needs of current and evolving freight fulfillment models businesses and consumers rely on for their goods and services."
Warehousing costs, meanwhile, were also up by 4.4%, again due to shrinking capacity and worker shortages. "Expect warehouse costs to rise as companies offer higher pay and benefits to prevent workforce shortages," Wilson says.