Logistics crests the hill

By most any measure, logistics had a notable year in 2018.

U.S. Business Logistics Costs rose 11.4% to hit $1.64 trillion, or 8.0% of GDP. Demand for carrier capacity fluctuated during the year but finished with intensity as tariff fears drove U.S. business inventory to an all time high of $2.75 trillion. In fact, the increase in inventory carrying costs exceeded increases in transportation costs.

That's the top line takeaway from the 30th Annual Council of Supply Chain Management Professionals (CSCMP) State of Logistics Report released last month. A.T. Kearney authored the report in partnership with Penske Logistics and CSCMP.

Drilling down into the numbers shows overall transportation costs increased 10.4% in 2018 with even higher increases in certain modes. Intermodal costs rose 28.7% while private fleets were up 13.1%.

Meanwhile, inventory posted a 14.8% overall cost increase on a 4.6% rise in inventory levels. That required more warehouse space, hitting an all-time high of 284.9 million square feet. In fact, 2018 was the fifth consecutive year that warehouse space utilization exceeded 240 million square feet. In addition, rents hit a new nominal high of $6.14 per square foot.

Taken together, all of those logistics activity levels led the report's authors to entitle it “Cresting the Hill.” The report looks at 2018 as a peak as the logistics roadway begins to decline somewhat in 2019. However, a steep decline is not anticipated just yet.

Just as important as the numbers is how logistics is changing. “Not a day goes by without news about a counter-move (to Amazon), a tech-enabled innovation, or an enhanced standard to serve customers,” says the report.

It continues, “As we predicted over the last two years, uncertainty became a steep grade. Carriers and shippers faced a choice: to either slog through it with conventional tactics or engage with opportunities to do something different, something better. More and more are trying the latter approach and are reaping the rewards. As this latest hill is crested and the players in the industry can see forward to how the next ones will test them, the rewards will go to those that seek bold new solutions.”

Key technologies here include sensing technologies, artificial intelligence, 5G cellular networks and blockchain, to name just a few. Underlying these technologies is a drive for greater agility in logistics by shippers and carriers alike.

“The other authors and myself like to think that there is a new bias for collaboration in logistics,” explains Michael Zimmerman in NextGen: The Interview. “We like to think that nextgen technologies are a new source of value for shippers and carriers. It's the only way we're going to move beyond the zero sum game that has historically defined the shipper-carrier relationship.”

The report quotes C.H. Robinson's CEO Bob Biesterfeld as saying “transportation companies are becoming more tech-savvy – the cost of computing is coming down, and companies are using data more effectively.” He goes on to say that such TransTech investments now rival those ion FinTech.

That is a major shift and a significant one.

However, four key pain points continue to challenge parcel carriers. Those four are: delivery density, variability, volume profiles and click-to-door requirements. “Automation will continue to play an integral role while machine learning and artificial intelligence will increasingly contribute to efficiency, through better forecasting and improved route and network optimization,” says the report.

The trend to same-day delivery was singled out in the report as the fastest growing service type for e-commerce deliveries. Growth here was about 15% in 2018 with total value pegged at $4.7 billion. Between 2018 and 2022, the report pegs compound annual growth of same-day deliveries at 19.5%, hitting $9.9 billion in value.

At the same time, same-day was cited as the reason so many “inventory locations are moving closer to the consumer.” Meanwhile, retailers are working “through how to negotiate the tradeoffs among customer experience and operating costs. They are looking for innovative ways to design and operate their last mile – through alliances with providers or use of private fleets and warehouses.”

As the report points out, maritime logistics is undergoing its own sea change.

Blockchain is now “a hot topic” with Maersk and IBM collaborating on TradeLens, a platform with more than 100 participants that has captured more than 235 million shipping transactions. Launched in 2018, the New York Shipping Exchange is a digital ocean freight platform that allows shippers access to carriers without using a freight forwarder. Meanwhile, two Norwegian companies are collaborating to build an autonomous container ship.

Clearly, the logistics scene is changing. Rapidly. As the report concludes, “It is worthwhile for shippers and carriers to think about how they will work together to adapt to rapidly changing conditions and build innovation, flexibility, productivity, and sustainability into their operations.”

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