sc digest
June 21, 2018 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet State of the Logistics Union 2018 bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet Cartoon Caption Contest Continues bullet Trivia      bullet Feedback
bullet New Expert Column bullet On Demand Videocasts




first thought


Supply Chain Graphic of the Week
How Much Do Procurement Managers and Executives Make?


US Truckload Rates See Record Increase

IMF Forecasts Strong Global Economic Growth Despite Trade Wars
Home Depot Transforming Distribution Network for eCommerce
Google Invests Big Time in eCommerce Partner


May 29, 2018 Contest

See The Full Cartoon and Send in Your Entry Today!

Holste's Blog: Shippers Looking To Increase System Capacity Are Surprised To Find It May Already Exist!


Weekly On-Target Newsletter:
June 20, 2018 Edition

Cartoon, 4-Worker DC, Procurement Pay, Top Manufacturing States, More


Discover the power of creating a global supply chain control tower!

Create A Micro Supply Chain for Each Customer Order

by Martin Verwijmeren
Chief Executive Officer
MP Objects

Planning Optimized - A Never Ending Journey

by Henry Canitz
Product Marketing & Business Development Director

There's Money in the Material

by Gary M. Barraco
Global Product Marketing
Amber Road

The Retail Vendor Performance
Management Bulletin


How much are US truckload rates up since the Cass Linehaul Index was launched in 2005?

Answer Found at the
Bottom of the Page

State of the Logistics Union 2018

What a difference a year makes.

The Council of Supply Chain Management Professionals (CSCMP) is out with its 2018 State of Logistics Report, looking at 2017 data.

The headline news: After declining in 2016 in both absolute and relative terms, logistics costs were back on the march again in 2017 - to no one's surprise. What the report started calling last year United States Business Logistics Costs (USBLC) were up 6.2%, driven by especially sharp increases in Q4 - which have obviously carried on into 2018.


Notable, spend on dedicated trucking rose a robust 9.5% in 2017, as shippers looked to lock up capacity in this freight environment.


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But with healthy US nominal GDP growth last year of 2.9%, even with that rise in total logistics spend, US logistics costs as a percent of GDP inched barely higher, to 7.7% versus a revised 7.6% in 2016, as shown in the chart below.

To get to this number, you take the number for US logistics costs - from trucking to pipelines - and divide it by annual nominal (not real) GDP numbers. Voila, logistics costs as a percent of GDP emerges. The methodology must use nominal not real GDP as the denominator because the costs for the year are compiled in nominal terms.

The general consensus is that the metric will rise again here in 2018, perhaps sharply. As a note, the Cass Linehaul Index, which measures US truckload rates, was up an incredible 9% in May - its largest year-over-year monthly increase since the index was launched in January 2005. The report notes that spot rates in the US dry van market were up a very strong 27% last year, most of that coming in the second half of the year, and again largely continuing here in 2018.



                                       See Larger Version of Chart

The peak year in the past dozen was 2007, when logistics costs hit 8.59% of GDP, close to where it was in 2008 (8.5%) before taking a steep drop in the recession year of 2009 to 7.4%, from there actually staying in a fairly tight band. 

This now the third report produced by consulting firm AT Kearney since it took over authorship after a competitive bidding process by CSCMP several years ago. The lead author is Kearney's capable Sean Monahan along with a number of his colleagues, but with a number of contributors from the industry also called out (e.g., Marc Althen of Penske Logistics, Ravi Shanker of Morgan Stanley, Brent Hutto of and several others.)

This is actually the 29th edition of the State of Logistics 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.

Again this year, Penske Logistics funded the report development, and the results were as usual released at a major media event at the National Press Club in Washington DC on Tuesday.

The report this year is titled "Steep Grade Ahead," using a trucking term to capture the current scenario in which pressure on transport costs and capacities are occurring while trade tensions may ultimately impact economic growth and freight flows. Last year, amid more uncertainty, the report identified four different potential logistics scenarios, from bullish to pessimistic. This year, there is just one, and it is uphill.

"Shippers needing to control logistics costs need creative thinking and innovation, and that means opportunities for start-ups and new technologies offering novel solutions to transportation challenges," the report nicely states.

The total cost of US logistics was estimated at $1.4947 trillion for 2017, up 6.2% from 2016, a year in which absolute logistics costs actually fell. The average annual growth in logistics costs - again including inflation - is 3.2% over the past five years.

Underneath the overall logistics cost number, transportation costs - the largest single component of USBLC at 64.6% of the total - was up by 7.0% in absolute terms in 2017. The second component, inventory carrying costs (28.6% of the total), was up 4.6% last year under the report's calculation, which includes the cost of warehousing but also the cost of capital (which drives the cost of holding inventory). That financing cost was up 5% versus 2016, and was a big driver in the increased cost of carrying inventory.

"Other" costs - always somewhat vague and mostly related to certain IT expenses and some services such as freight forwarding - were up 4.9%, though this is by far the smallest of the three main categories at just 6.7% of the total number.

You can find the full breakdown in the chart here.

Within transportation, trucking-related spend (including private fleets but excluding parcel) comprises 66.4% of total transport costs and 42.9% of total logistics spend - both numbers virtually identical to last year's percentages.

Notable, spend on dedicated trucking rose a robust 9.5% in 2017, as shippers looked to lock up capacity in this freight environment.

Parcel shipping costs were estimated at $99 billion in total, up 7% over 2016. That represented 10.2% of transport costs (up from 9.6 in 2016) and 6.6% of total logistics spend. eCommerce obviously is driving total parcel costs up.

At $80.5 billion in 2017, rail comprises 8.3% of transportation spend - up from 8.0% last year. Rail was also 5.4% of the total logistics costs, up a bit from last year. But the US spent about $20 billion more in parcel shipping than it did in rail transport last year - interesting.

In terms of growth in spending by these various categories, the 5-year average annual growth rate in costs by mode or cost category are as follows, according to the report:

Truckload: 4.8%
LTL: -2.1%
Private/dedicated fleet: 6.8%
Trucking combined: 4.8%
Parcel: 7.9%
Intermodal: 2.6%
Rail total: -0.3%
Air freight: 1.5%
Waterways: -0.4%
Warehousing: 3.1%
Inventory carrying: -1.0%

With overall logistics costs rising 3.2% per year over the past five years, comparing the rise in any specific area versus that 3.2% overall number will indicate whether it is gaining or losing share of total spend.

Trucking, for example, is still gaining in share of spend versus rail, while truckload and parcel are gaining share versus LTL. I am very surprised intermodal costs have been averaging less than overall logistics spend growth.

Warehousing cost are running about equal with total logistics spend over the past 5 years, despite rapidly rising costs for DC space in most markets (up on average 5.9% for new contracts in 2017). Increased efficiency must be playing some role there. The US inventory-to-sales ratio rose sharply from 2014-2016, but has since been trending down, and is now back at about 2015 levels.

The report has a lot more detail on each mode and cost bucket, as well as the overall economic and logistics environment, which I don't have room for here.

The report includes a special section on blockchain and the supply chain, noting that it is moving from buzzword to reality. That said, the report says "We expect steady but gradual uptake as industry players define a set of common standards, revamp logistics technology for blockchain, and win buy-in through successful pilot programs."

My bottom line view: This is clearly the best State of Logistics report yet by Kearney and CSCMP, and well, well worth a read. As I said last year, I wish they could find some way to get the report done earlier in the year. I understand the many challenges in making that happen - but believe it could be done, even if some data has to be revised later.

CSCMP members can already download a copy for no charge, others purchase one for a modest fee. I recommend it.

Any reaction to our summary of this year's State of Logistics report? How could the report be improved? Let us know your thoughts at the Feedback button below.


On Demand Videocast:

Digitizing the Order Management Process

Orders Still come in Many Different Forms and Systems - Here's How to Get them Under Digital Control

This videocast discusses breaks down all the ways in which orders can arrive, the downstream challenges associated with each, and the benefits of digitization.

Featuring Dan Gilmore, Editor along with Esker's Sarah Joiner.

Now Available On Demand

On Demand Videocast:

Reducing Costs through Automated Inventory Replenishment & Analytics

How Motor City Industrial Taps into Data Visualization to Help Customers Identify Waste, Reduce Inventory

This videocast discusses how to connect people, processes and technology across commerce and supply chain operations to achieve unified commerce.

Featuring Dan Gilmore, Editor along with Joseph Stephens, CEO, Motor City Industrial, Jay Fielder, Supply Chain Technology Manager, Motor City Industrial and Mike Wills, Chief Revenue Officer, Apex Supply Chain Technologies.

Now Available On Demand

On Demand Videocast:

Yes, Retailers and Distributors Can Survive and Thrive by Unifying Commerce and Supply Chain

Integrated Approach will Improve Customer Experience as Smart Retailers Move Beyond Omnichannel

This videocast discusses how to connect people, processes and technology across commerce and supply chain operations to achieve unified commerce.

Featuring Dan Gilmore, Editor and enVista CEO Jim Barnes, a highly recognized industry expert on retail and distribution.

Now Available On Demand


We had a couple of good questions from our video interview with Jessica Butler, on the new report on trends in retail chargebacks from her company, Attain Consulting Group. See the questions and the responses below.

Feedback on 2018 Retail Deductions Study:


I was watching your update Monday on Trends in Retail Chargebacks.
I was surprised to hear that on time delivery was not ranked higher in the non-trade chargeback area.
Many of the grocery customer have put in new fees/fines similar to Walmart OTIF.
In this transportation environment, I would have expected a bigger impact here.
What are your thoughts?

Deb Schultz
Director, Transportation
Post Consumer Brands

Editor's Note:

I am not completely sure, but I believe the ranking was simply on most common occurrences. So, especially in apparel, having picking/packing errors in so-called split case cartons (different SKUs in one shipping carton) is relatively common, and thus it would not surprise me if that was more common than late shipments.

Think that is a reasonable explanation.

Dan Gilmore


What technology was Jessica referring to that can automate managing deductions for organizations?

Ashley Sobieck
Customer Compliance Manager
Perrigo Company plc


Response from Jessica Butler:

There are a number of different cloud-based technology tools out there that can automate various parts of the deduction management process. The tool that I feel is the most flexible and offers the most functionality is from HighRadius Corporation. They have a variety of different solutions across the entire AR process. Some of the deduction-related automation features include:

• Cash application pre-processing with customer specific rules to code deductions based on different customer remittance information
• Automatically retrieving claim documentation and PODs from customer & carrier portals and/or emails, eliminating manual effort associated with retrieving backup
• Creating 'pre-deductions' from claim documentation even before deductions have been received - allowing analysts to get a jump start on validation / research activities
• Centralized cloud-based portal to track deductions, upload documentation, add notes, route to various users, approval workflow

• Ability to automate dispute process on both customer portals and/or via email / fax / postal mail

o Auto populate / post disputes on customer portals for those who require disputes to be done via portal
o Auto generate customer correspondence to be emailed / faxed / mailed for things such as disputes, request for additional back up





Q: How much are US truckload rates up since the Cass Linehaul Index was launched in 2005?

A:33.7% - an annual growth rate of only about 1.6%, believe it or not.

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