Tuesday, July 21, 2015

The Party's Over?

Days of historically low US logistics costs seen coming to end.

Putting supply chain economics into jukebox terms, the industry is moving from “C’mon and Take a Free Ride” to “Turn Out the Lights, the Party’s Over.”

Tightening capacity fueled by growing demand spells the end to historically low logistics costs, according to the latest State of Logistics report out of the Council of Supply Chain Management Professionals. The cost of U.S. business logistics rose 3.1 percent to slightly less than $1.45 trillion in 2014 and those numbers are only expected to keep rising, said the report, with costs for everything from hiring a truck driver to warehousing goods geared to continue rising “for at least another two years,” reported the Journal of Commerce.

In 2014, trucking, the largest component of transportation costs, rose 3.5 percent, while the cost for rail transportation rose 6.5 percent. The increase in truck tonnage supports anecdotal evidence that suggests loads are heavier and more trucks are moving at near or full capacity. That tightening capacity, especially on the motor carrier side, will only escalate costs for shippers. Overall, rail traffic was up 4.5 percent, with intermodal volume up 5.2 percent, beating 2013’s record-setting total. The cost of storing goods also increased, up 4.4 percent in 2014.

A scarcity of drivers coupled with increased federal regulations will cripple the trucking sector's ability to meet future demand. Employee retention is now the most pressing challenge for the logistics industry. Pay for these workers has not kept pace with other blue-collar jobs in the economy and the logistics sector will have to increase wages if it intends on keeping its workforce levels up.

Today, larger trucking firms are poaching drivers off smaller fleets. Those smaller firms are, in turn, closing their doors, driving down competition in the industry. According to the CSCMP report, roughly 390 trucking firms filed for bankruptcy in 2014 alone.

For shippers, bargains and savings will be harder to find than ever in the months ahead. Maybe the new theme song should be “Gimme Shelter.”

Kirk Shearer 
800-989-0054 x103

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