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  First Thoughts

    Dan Gilmore


    Supply Chain Digest

June 28, 2024

State of the Logistics Union 2024

Logistics Spend Fell 11.2% in 2023

The Council of Supply Chain Management Professionals (CSCMP) and partners Kearney and Penske Logistics are out this last week with the 2023 State of Logistics Report, looking primarily at 2023 data.

The theme this year: “Waiting for the Tide to Turn,” which refers to the potential for the weak global economic environment - and with it soft freight volumes - to turn upward.

The report is a mammoth effort, and one which takes more than five months from the end of the preceding year to produce the report in mid-June. The result of that time lag, seemingly unavoidable, is that the review of what happened in the previous year halfway through the current one makes the data modestly stale.

Gilmore Says....

With overall tranport costs rising 7.4% per year over the past five years, comparing the rise in any specific areas versus that 7.4% overall number will indicate whether a mode gaining or losing share of total spend

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However, the consultants at Kearney took over producing the report nine years ago, and I will say Kearney has again done a good job providing the analysis of 2023 but also bringing in more timely data and trends from the first few months of 2024 to the extent possible.

Five Kearney consultants are cited as the report's authors, with shout outs to dozens of other people and organizations that helped with data or advice.

Again this year, Penske Logistics funded the report development.

This is actually the 35th 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.

As always, the headline news: what the report several years back started calling US Business Logistics Costs (USBLC) actually fell on an absolute basis in 2023 to $2.37 trillion, down from $2.6 trillion in 2022, for a drop of 11.2%. That was after an increase of a huge 25.3% in 2022.

Since the report’s inception, total USBLC was then divided by nominal US GDP to calculate logistics costs as a percent of GDP, which can be used for comparisons across years.

Inexplicably, the report downplays that important number, not mentioning it (as far as I can tell) in the main body of the report. At the very end of the document, there is a table with a last row of USBCL as a percent of GDP, but the numbers are in fact not as percentages but as a index score relative to 2013 baseline (index = 100).

Not nearly as useful, but for what it’s worth, the index score for 2023 was 111.0, meaning USBLC were up 11.0% versus 2013. By comparison, the index number was 134.3 in 2022.

But this simply not as interesting or useful as the traditional approach and I have no idea why this path was taken.

It also means I cannot share a chart as I usually do that tracks logistics costs as share of GDP over the past decade.

Looking at the chart at the end that I referenced above, I believe it is correct to say that in 2014 through 2020, US logistics costs as a percent of GDP were remarkably stable, before big jumps in 2021 and 2022, and then the major drop last year.

I can tell you the number for 2023, by comparing USBLC from one chart and nominal GDP from another. My calculation: logistics costs were 8.6% of GDP last year, versus that 10.5% in 2022 two years ago, so quite a drop.

Underneath the overall logistics cost number, transportation costs - the largest single component of USBLC at 63.1% of the total (versus 65.1% in 2022) – were down 14.3%, versus an average of +7.1% annually over the past five years.

The second component of USBLC, inventory carrying costs (29.4% of the total, versus 31.9%% in 2022), were down about 8% from 2022 last year under the report's calculation, which includes the cost of warehousing and inventory levels but also the cost of capital (which drives the cost of holding inventory).

The decline in interest rates last year versus 2022 pushed the cost of carrying inventory lower.
"Other" costs - always somewhat vague, and mostly involving certain IT expenses and some services such as freight forwarding, were up 6.7%, though this bucket is by far the smallest of the three main categories at just 7.4% of the total cost logistics number (versus 6.2% in 2022).
You can find the full breakdown by logistics cost bucket in the chart below:


Source: CSCMP/Kearney

Within transportation, trucking-related spend (including private fleets but excluding parcel) comprised 62.2% of total transport costs and 39.2% of total logistics spend, down from 42.9% in 2022.

Parcel shipping costs were estimated at $215.7 billion, actually down 0.5% over 2022, as ecommerce growth was tepid, and we would assume from this number B2B parcel volumes as well. Parcel represented 14.4% of total transport costs and 9.0% of total logistics spend, the latter down from 12.4% in 2022. Over the past five years, parcel costs have risen by 11.2% on average, even with the slow 2022 and 2023.

At $96.5 billion in 2023, rail comprised just 6.4% of transportation spend – but up from 5.6% in 2022. Rail was also 4.0% of the total logistics costs, compared to 3.6% in 2022.

The US thus spent about $119.1 billion more in parcel shipping than it did in rail transport last year - a bit more than a delta of $118.4 billion in 2022.

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: 5.6%
• LTL: -0.2%
• Private/dedicated fleet: 8.8%
• Trucking combined: 6.6%
• Parcel: 11.2%
• Rail: 2.5%
• Air freight: 2.1%%
• Waterways: 18.2%
• Warehousing: 5.3%

Yet again there are some significant changes in some of these CAGR numbers versus the 2022 report, and I am not sure what caused these changes in just one year. I suspect the issue is actually revision of the prior data, but it is a bit bothersome.

With overall transport costs rising 7.4% per year over the past five years, comparing the rise in any specific areas versus that 7.4% overall number will indicate whether a mode gaining or losing share of total spend (note: that is not the same as tonnage share changes, though I suspect the numbers would be similar).

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

In addition to a lot of data on each transport mode, the report also again includes special sections on sustainability and network trends that I will review these in a follow up column.

My bottom line view: In a repeat comment from my review last year, Kearney and CSCMP continue to improve this report, and it is well worth a read. It continues to improve in integrating current trends and data with last year's numbers that are the heart of the report.

But please bring back the chart showing the last 10 years of logistics costs a percent of GDP and explain the big changes in 5-year CAGR numbers by mode in one year.

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

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

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