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Logistics Costs Plummet more than 18%
Overview of Logistics Industry in 2009 versus 2008
CHICAGO— Manufacturer and Distributors spent a record low on logistics last year. Annual cost of logstics spent a record low of just under 5% of GDP in 2009, compared to just over 9% in 2008., according to annual report issued last week.
The Council of Supply Chain Management Professionals (CSCMP) and Penske Logistics at the National Press Club reported Logistics Spending by Manufacturers and Distributors has fallen to 7.65%, from a Record high of 16.2% in 1981. The report outlines the impacts the 24+ month recession has taken on the transportation and freight industry.
Beginning in 2008 Shippers and Carriers had felt the pinch from excess capacity, higher fuel costs, and increased external threats introduced into the industry regarding tighter regulation on a multitude of platitudes.
Over the Road Carriers, Logistics Professionals, Truckload Carriers, Owner Operators, and LTL Carriers have taken steps to reduce capacity, but Rosalyn Wilson (Authori of the CSCMP Report) warns Shippers, Manufacturers, and Distributors that the current business climate and increase restrictions on consumer credit may cause difficulty in rapidly expanding capacity in the foreseeable future. “It is likely that we will have capacity problems in some areas by year’s end,” Wilson reported.
The Freight, Trucking, Intermodal and Air Freight Industries have been under considerable pressure since the beginning of the recession more than two years ago. Transportation costs tumbled an additional 20 percent in 2009 after surging more than 50 percent during a five year period preceding the recession which began in the fall of 2008.
After rising over 50 percent in the five years leading up to the recession, total logistics costs have fallen the past two years. Transportation costs were down more than 20 percent last year. All transportation modes have been effected, with trucking (both Truckload and LTL combined) falling more than 20 percent. Intermodal and rail prices nearly mirrored trucking rate reductions with substantial declines averaging just under 20 percent.
THE CHANGING FREIGHT INDUSTRY
Shippers cannot get too accustomed to these cheap shipping and cheap freight rates. Capacity constraints, carrier bankruptcies, and Owner Operator financial struggles have impacted the Transportation Industry which will result in large reductions of capacity Wilson warned. Wilson went on to advise caution as freight rates have already risen in some modes and higher rates will continue to be introduced to the market place before the end of 2010.
The Trucking section (truckload carriers, less than truckload carriers, and specialty carriers) have felt the economic struggles. Experts are forecasting an additional 2,000 trucking companies will close their doors because the financial pressures places on them will be too much to survive.
Third Party Logistics Firms have also played an important role in the ever changing transportation industry. Many Shippers have abandoned their long-standing Logistics (freight brokers, 3PL, Third Party Logistics Firms) and have elected to utilize the spot marketplace. This shift has significantly pressured freight companies to reduce prices further to win business.
The remainder of 2010 will continue to be challenging for all transportation companies. Some experts explain there is excess capacity simply ‘parked’ which can be utilized with little notice. Other transportation experts believe there will be shortages of both trucking equipment and truck drivers. Wilson believes the transportation industry has leveled off to adequate market capacity levels, but expressed concerns how the industry will facilitate future economic growth as demand returns and freight pricing increases.
Owner Operators and Truck Companies who survive the industry will have an undoubtedly optimistic future. Experts believe Capacity will tighten and cheap freight rates will disappear as rates rise. Manufacturers and Distributors must maintain strong freight relationships in order to position themselves favorably as freight prices begin to climb with economic recovery.
Other experts argue that modest rate increases will be realized in 2010, but that largely freight pricing will remain reasonably flat going forward. There are many factors which are yet to be determined and issues facing our economy and transportation industry. One thing is for certain: If one asks around enough about the feeling of the industry, there is certainly an optimism for a long awaited economic recovery for Owner Operators, Truckload Carriers, LTL Carriers, Shippers, Manufacturers, and Distributors alike.
By Brad Hollister
Director of Business Development
Learn more about the author, Brad Hollister.
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