Freight logisticians chalk up best year since Great Recession, but capacity issues persist

By John D. Schulz, Contributing Editor

A new authoritative report credits logisticians' savvy management of their transportation networks for holding logistics costs to a historically low percentage of Gross Domestic Product (GDP).

According to the 26th Annual State of Logistics Report (SoL), the logistics and transportation industry chalked up its best year since the Great Recession, with U.S. business logistics costs rising 3.1 percent to $1.45 trillion last year.

Presented by the Council of Supply Chain Management Professionals (CSCMP) and Penske Logistics, the SoL reports that logistics costs were a scant 8.3 percent of GDP in 2014, a tenth of a percent lower than in each of the previous three years and less than half of what logistics costs were as a percentage of GDP in 1979, the last year of fully regulated surface freight transportation.

Freight transportation costs rose 3.6 percent last year due to stronger shipment volumes and inventory carrying charges that were up 2.1 percent, according to the report. But overall, it was a very solid year for logisticians, who were able to manage fluctuating volumes amid tight capacity due to infrastructure constraints and labor issues such as the West Coast dock slowdowns.

“In 2014, consumers began to drive the economy once again as consumer confidence measures soared,” says Rosalyn Wilson, author the of the annual SoL report. “And it was freight transportation helping to drive that consumer spending in the most efficient manner possible.

With freight transportation and tonnage volume still slightly below pre-recession levels, freight shipment volumes followed a predictable trend last year—starting the year at or below previous year levels, rising through the spring, flattening or even dropping during the summer, peaking during August and September, then falling close to the levels that the year started.

“Shipment volume rose in April, reaching the highest level since June 2011,” says Wilson. “Freight continued to gain momentum, although the performance of the economy overall during the period was very weak.”

In 2014, the trucking industry edged closer to 100 percent utilization. Predictably, the capacity constraints affected truck rates. In May 2014, freight payments were 11.2 percent higher than in May 2013 and 77.7 percent higher than at the end of the recession in 2009. “Rates held steady despite the tightening capacity,” says Wilson. “Both the number of shipments and freight spend reached a crescendo in June, with shipment volume surpassing the November 2007 pre-recession levels.”

Turmoil returned in October in the form of a rising freight shipments, particularly imports. But the real story last fall was that freight was having a difficult time moving due to congestion in ports, especially in the ports of Los Angeles and Long Beach (LA/LB) where a long-standing labor dispute continued to simmer, Wilson said while releasing the report June 23 at the National Press Club.

Those ports handle more than 40 percent of all ocean imports, and an even higher percentage of consumer goods. By the end of October, there was more than a three-week delay in unloading ocean vessels at LA/LB.

By modes, here is how 2014 fared:
-Trucking, the largest component of freight transportation costs, rose 3 percent last year as total trucking costs (intercity and local) surpassed $700 billion for the first time to $702 total. Intercity trucking rose 2.7 percent to $488 billion, and local delivery was up 3.7 percent to $216 billion;
-Rail transportation costs rose 6.5 percent to $80 billion. Class 1 freight revenue per ton-mile increased 0.1 percent from 3.961 cents to 4.054 cents, the report states. Overall rail traffic was up 4.5 percent—3.9 percent for carloads and 5.2 percent for intermodal;
-Water transportation rose 8.9 percent, the second highest growth sector last year. The domestic costs for movement of freight in and out of the U.S. through its deep water ports was $31 billion—not including actual ocean shipping costs—and $9 billion for domestic lake and coastwise moves; and
-Air freight revenue slipped 1.2 percent to $28 billion ($12 billion international and $16 billion domestic). According to the SoL, this slip is due to “downshifting” by shippers to more expedited ground shipments and a 6 percent drop in international air shipments.

Looking ahead to this year, Wilson predicted rates should level out towards the end of this year. She said rate increases would be “modest to moderate” in 2016 depending on the level of economic activity, but said it is still a sellers' market.

“Carriers will still have the ability to pass on their higher costs to shippers,” Wilson concluded.

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