sc digest
June 20, 2013 - Supply Chain Newsletter

This Week in SCDigest

bullet State of the Logistics Union 2013
bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic of the Week and Supply Chain by the Numbers bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Winners Announced bullet Trivia      bullet Feedback
bullet New Supply Chain By Design, Daily Jab and Expert Insight bullet New Videocasts/On Demand Videocasts

The 13 Keys to Retail Vendor Performance, WebEDI, Visibility Means Cash, Retail Supply Chain Special Reports and more...

  first thought


Supply Chain Graphic of the Week:

Logistics Costs as Percent of GDP by Country

Supply Chain by the Numbers for Week of June 20, 2013 - State of Logistics Report Edition

  • Future Looking Bleak for Number of Truck Drivers
  • Volume Surged through Port of Tacoma in 2012
  • Impact of Interest Rates on Logistics Costs as Percent of GDP
  • Intermodal Growth Goes On and On


May 29, 2013 Contest

See The Who Took Home the Prize!

Holste's Blog: Understanding What Determines Maximum Conveyor System Throughput Capacity



Weekly On-Target Newsletter:
June 19, 2013 Edition

Last Chance Cartoon, WMS Mod ROI Calculator, MES Barriers, Sourcing Leaders and more


What Took So Long for Bangladesh and Pakistani Apparel Supply Chain Issues to Rise to the Surface?

By Dan Gilmore, Editor, SCDigest


What is Big Data?

By Dr. Michael Watson

Global Trade Strategies with Financial Returns for Retailers

By Ty Bordner
Vice President, Product Management & Solutions Consulting
Amber Road


What is the cost to build the new Maersk Triple-E megaships, with a capacity of 18,000 TEU?

Answer Found at the Bottom of the Page


State of the Logistics Union 2013

The annual State of Logistics report is just out with much fanfare from Rosalyn Wilson and CSCMP, with the headline news that overall relative US logistics costs were flat in 2012 versus 2011, at 8.5% of GDP. That after a 2.6% rise in 2011 (as a percent of GDP), and a sharp 10.6% rise in 2010, which in turn followed two years of relative logistics cost declines in 2009 and 2008, driven by the recession.

In 2007, logistics costs rose to a recent record of 9.9% of GDP, as soaring oil prices and tight trucking capacities capped a multi-year surge in logistics costs. By 2009, logistics costs had fallen to just 7.9% of GDP. At 8.5% of GDP, we are still well below that 2007 peak, and again back where we were in 2003, before the four year run-up through 2007.

To make sense of all that, a graph of the last 10 years of logistics costs as a percent of GDP is provided below.


"That $1.331 trillion in total logistics spend is 21% above the 2009 bottom, but still below the 2007 peak of $1.39 trillion."


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I am not at all surprised that logistics costs as a percent of GDP were flat last year, as oil prices on average were little changed over 2011, most transport modes seemed pretty balanced between demand and capacity, and interest rates were also mostly flat (and low), a measure which impacts inventory holding costs.

This represents the 24th edition of the report, which was launched in 1988 by the late Bob Delaney and sponsored by his company, Cass Information Systems. Somewhere along the way, CSCMP took over the sponsorship, and in the late 1990s Wilson, who has a long career in the logistics industry, began to support Delaney in his efforts. Upon Delaney's passing a few years later, Wilson took on the challenge alone, largely keeping the existing methodology.

Over the past couple of years, the delivery of the report has come with a lot more hoopla, with a corporate sponsor (Penske, for the fourth year) and a panel discussion of supply chain executives and more at the Washington DC report launch event on Wednesday. I was not able to make that press conference, but as always will summarize the report here. Videos of the event/panel will be available soon from Penske. We will do a video summary in our news broadcast with CSCMP on Monday.

Just for perspective, the total cost of US logistics was estimated at $1.331 trillion in 2012, up 3.4% in absolute terms (not relative to GDP). A lot of elements go into that number, from warehouses to trucking to pipelines, but the three main categories are inventory carrying costs, including the costs of warehousing (32.6% of the total logistics spend), transportation costs (62.8%), and administrative costs, mostly related to logistics IT spend not otherwise capture in the other two categories (just 4.6% of the total).

Within transportation, trucking-related costs comprise 77.4% of transport costs and 48.6% of total logistics spend, while other modes (rail, water, pipelines, freight forwarders, etc.) account for 22.6% of transportation spend and 14.2% of the total logistics spend.


Source: State of Logistics Report 2013/CSCMP

View Full Size Image

All those numbers above were little changed in 2012 versus 2011, with the exception that trucking's share of transportation spend fell slightly, about half a percentage point, which is probably indicative of the rise in rail carriage - or maybe at least the rise in rail rates, which were up around 5% in 2012.

Total rail freight revenue rose 4.3% even as ton-miles fell 1%. That's pricing power. However, that 4.3% rise in rail spend was down from a whopping 15.6% increase in 2011.

That $1.331 trillion in total logistics spend is 21% above the 2009 bottom, but still below the 2007 peak of $1.39 trillion. We'll note that total US manufacturing output is still about 5% below 2007 levels as well, despite pretty good growth since 2009. Both numbers show just how deep that recession was - we're still not all the way back some five years later.

Inventory carrying costs were up 4% in 2012, down from a rise of 7.6% in 2011. But most of that 4% absolute rise in costs came from an identical rise in inventory levels. The higher the absolute level of inventory, the higher the absolute spend for insurance, taxes, depreciation, etc. Inventory to sales ratios, however, were largely flat year over year, falling a bit in the first half of 2012 but then rising in the second half to end about where they were at the start of the year. But there were differences by sector - retail inventories increased 8.3%, compared to 3.8 and 1.3% for wholesale and manufacturing respectively. That's a change from recent trends.

We will note here that what the true carrying cost of inventory should be is far from an exact science, and others might calculate this macro-number differently than Wilson does, but the report has been using the same methodology for years, so year over year the numbers and direction are consistent and do reflect trends.

Overall, warehousing costs rose 7.6% in 2012, almost twice the rate of inventory growth. I am not sure what is behind that, although certainly warehouse space costs have been recovering of late.

Transportation costs were only up 3% in 2012, down from a 6% rise in 2011. In the trucking sector, spend was up about 3% on tonnage gains of 2.3%. That would imply a small rise in rates, although most publicly traded truckload and LTL carriers reported stronger rate environments in 2012. Not sure how to square that circle. Regardless, Wilson said that neither rate nor volume growth was particularly strong during the year, and that the first half was much better than the second half of the year from the carriers' perspective.

Wilson noted the impact that the CSA 2010 program is having on the driver pool, with new procedures like requiring medical certifications and hair follicle drug testing in addition to the more detailed safety reporting. The new Hours-of-Service rules scheduled to be enforced on July 1 will reduce driver productivity, impacting rates eventually and the driver shortage immediately. No one is quite sure by how much, but Wilson sees the hit to productivity ranging from 2-10%. That's consistent with the 5% or so I have heard most carriers predict.

A few other highlights from the report:

New truck sales soared early in 2012, but new orders came to an abrupt end later as traffic slowed. Purchases still appear to be primarily replacing equipment being retired rather than adding to the fleet.

It was largely more tough times for the ocean carriers, as vessel capacity jumped 7.2% even as demand fell off sharply globally. Deliveries will not fall off until 2014 because carriers did not stop ordering until mid-2011. Capacity is expected to rise by 10% in 2013 because of new deliveries, even as the number of TEU scrapped will reach record highs this year. Wilson says that during 2012, carriers tried seven times to implement general rate increases, but none stuck.

The airfreight industry continues to face troubles, with total tonnage dropping 2.2%. Wilson says international tonnage declined 1.4% and domestic down 0.1%, which doesn't seem to us could possibly lead to a 2.2% total drop, but who knows. Wilson says more certainty in demand is leading more companies to switch from air to ocean, and that the focused express carriers are facing increasing competition from passenger airlines for the express shipment business.

There is more, but that's all I have room for. Nice job as usual by Wilson and CSCMP.

The report is available at no charge for CSCMP members, of which I am one. It can also be purchased by non-members.

Any reaction to this year's State of Logistics report for 2013? Let us know your thoughts at the Feedback button (email) or section (web form) below.


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Tuesday, July 16, 2013

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Received a number of letters from our First Thoughts column last week on Supply Chain Future - A Physical Internet?

We publish a few of those below, including our Feedback of the Week from John Hill of St Onge, who provides some context on how the whole idea was started.


Feedback of the Week - The Physical Internet:


The roots for the PI initiative can be traced to MHI's 2007 Material Handling Logistics Summit and a proposal for concept refinement funding presented to MHI & CICMHE by Drs. Russ Meller and Benoit Montreuil (Universite Laval, Quebec) in 2010. An excerpt from the proposal:

The 2007 Material Handling Logistics Summit was a defining moment for CICMHE, MHIA and all of the Summit participants. In fact, the foundation for the proposed research can be traced back to this event. One of the summary themes of the Summit was, Theme 4: Vision and roadmap for next-generation supply chains and associated Material Handling & Logistics innovation challenges, steering key projects. We present a proposal that directly addresses this theme and one of its associated initiatives, Develop a vision and models for future supply chains by exploring intra-facility and inter- facility issues, identify gaps in state-of-the-art and knowledge, and generate a research and development roadmap, perhaps through a think tank. As will be shown in our proposal, we have developed such a vision, proposed models related to this effort, and identified a group of industrial collaborators that will, along with the principal investigators and other researchers, seed the think tank.

I offer this bit of information not only to recognize the early sponsors (MHI, CICMHE, CELDI) and pioneers (Ellis, Meller, Montreuil and those currently helping them), but also to assure that when the history of the Physical Internet is written (and it will be) that its origins are not obfuscated by faded memories.

Along similar lines, keep an eye on what MHI and other organizations are doing in support of development of a US Roadmap for Material Handling & Logistics.

Neither the PI nor the Roadmap will be a short term initiative, but it's good to see private industry and academia collaborating today on solutions that will enhance the contributions the supply chain community can bring to the quality of life for future generations.

John Hill
St. Onge

  More on Physical Internet:  

Your article on the Physical Internet syncs with a lot of activities going on this space under various names including internet of things, real-time supply chains,... So you were not late in your report. Good things happen in Nine months!!

Amazon just announced their same day delivery of groceries. Walmart has been at it in some cities. A lot of technologies including RFID, GPS, OCR have come in waves and left varying experiences with the early adopters. It is the second wave now that is leveraging the lessons learnt with a more educated customer deploying tactical solutions with tangible benefits.

The Quebec-to-LA example raises a lot of basic questions on the need to rethink the solutions and address new demands for how same-day-deliveries will be accomplished by supply chains. It is a great time for the American economy and innovators to rethink the value of every supply chain link.

Subhash Chowdary


I think this would work. Container modularization changed the world of shipping when standards were agreed, but it took a visionary like Malcolm McLean to take the risk, invest and lead change.

In today's opinionated, open to anything environment, I think that human aspect of being able to agree to a standard will be the obstacle. After all, there plenty of technical solutions to most of the problems we face nowadays, reaching consensus is not just an issue in Washington.

Of course, back to basics, as with a pallet, chassis or container, who will be responsible for the cost to replace the damaged modular unit?

Eugene V. Nusekabel
Transportation Manager
Nexeo Solutions



Q: What is the cost to build the new Maersk Triple-E megaships, with a capacity of 18,000 TEU?

A: About $185 million each, based on a 20 ship order, down from the $190 million initial estimate. The first Triple-E will be delivered within a few weeks.

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