Era of cheap freight costs may be ending, says report.
Shippers have enjoyed a long run of low logistics costs, particularly if you separate out the parcel delivery sector. But the times of bargain logistics, “fueled” by a dramatic drop in energy prices over the last two years, may be coming to an end.
This was the takeaway from the recent 2017 State of Logistics Report, presented by the Council of Supply Chain Management Professionals (CSCMP) in Washington, DC. US business logistics costs dropped 1.5 percent last year to $1.39 billion, the first decline since 2009, but companies should expect those costs to climb again in 2017.
“Shippers are demanding low prices, and I don’t think that’s going to be sustainable,” said Marc Althen, president of Penske Logistics. “Ocean (carriers) are losing money every year, and that’s not sustainable,” said Miguel Gonzalez, director of global logistics at DuPont, ranked 23rd on the list of top US exporters and 94th among US importers.
Spending on “water” services, including international ocean and domestic waterways, dropped 10 percent to $40.6 billion, the CSCMP report said. Spending on truckload freight dropped 1.6 percent.
Business spending on parcel shipping soared due to growth in e-commerce, rising 10 percent to $86.3 billion, while rail spending dropped 11 percent to $71.9 billion, marking the first time parcel eclipsed rail as the second largest mode, measured by shipper spend.
Transportation providers have predicted the end of low pricing before. But general business activity continues at robust levels, and there is not likely to be anything on the horizon comparable to the collapse in oil prices, which saw crude fall from $115 per barrel in June 2014 to under $35 in February 2016.
Many savvy producers are “relying more on strategic partners…to mitigate the risk,” said Gonzalez. “We have to be prepared."