Logistics costs jumped 22.4% in 2021: report

The 33rd Annual State of Logistics Report, the year-over-year review of America’s corporate logistics system, empirically confirmed what everyone already knew: 2021 was nirvana or a nightmare depending on what we do in life.

Total logistics costs, which measure the amount spent on transportation, warehousing and ancillary services such as support and administration, soared 22.4% last year to nearly $1.85 trillion. , according to the report. That equates to 8% of US GDP, a level not seen since 2008, says the report, which was released by the Council of Supply Management Professionals (CSCMP) trade group on Tuesday morning.

Demand increased across all modes and services. Businesses desperate for reliable trucking capacity led to a 39.3% increase in spending on private fleets or dedicated contract hauling to $415.2 billion. Inventory carrying costs jumped 25% to $502 billion as growing warehouse demand and supply chain congestion filled facilities to overflowing. Capital costs to transport mountains of inventory jumped 33.4%.

Spending on maritime services jumped 23.6% as shipping carriers took advantage of massive rate increases on international shipping routes to earn more money in 2021 than in the previous 20 years combined, according to the report.

Spending on parcel delivery services jumped 15.6% and produced a five-year compound annual growth rate of 11.4%, the highest of any cost element in the report.

All of this led to increased carrier profits at a time when shippers were feeling the double whammy of shrinking margins and declining service levels, the report said. Shippers of all types were “looking forward to the days” when service levels that are now considered acceptable were seen as major failures, the report said.

Throughout the report’s long history, a relatively high cost-to-GDP ratio reflected network inefficiencies that forced users to spend more to get goods to market. Network inefficiencies were certainly evident in 2021, along with an unprecedented surge in demand for goods that is one of the legacies of the COVID-19 pandemic.

Given the events of the first half of 2022, it is clear that next year’s report will be different from this year’s. Consumer demand has cooled following rising inflation and the waning effects of pandemic-related government stimulus measures. Rising interest rates will further reduce spending.

Consumers worried about cost increases and the possibility of a recession will not spend as freely this year as they have in the past two years. Greater service-related consumption, especially in travel and entertainment, will reduce spending activity on goods.

Some of these changes manifest themselves in the daily logistical ebbs and flows. Ron Marotta, vice president of supply chain solutions for the Americas division of freight forwarding and contract logistics company Yusen Logistics, said in a conference call with reporters last Friday that freight shippers shipping were increasingly looking to negotiate their carriage contracts as more liner capacity opened up. .

In a sign that ocean supply and demand could regain some form of balance, Yusen has cleared nearly all of its freight backlogs, some of which have accumulated over two years, Marotta said. The general environment, he said, has become “more conducive to shippers.”

While the twin miseries of transport delays and higher fares may ease somewhat for shippers, the report’s authors cautioned that the pendulum will not swing back sharply to an abundance of capacity and lower fares. Demand for e-commerce and last-mile delivery will remain high and some supply bottlenecks will not ease easily, they wrote.

Higher borrowing costs will continue to drive up the expense of holding the many billions of dollars of inventory stored in warehouses and distribution centers. The already complex task of managing a dizzying array of SKUs will only be compounded by the higher interest charge, said Andy Moses, senior vice president of sales and solutions at 3PL Penske Logistics.

The continued rise in interest rates “will expose any inefficient management of processes in the warehouse trade,” Moses said last Friday.

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