News / Despite slow demand and falling rates, supply chains still cost a packet

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Although freight rates retreated in most modes last year, supply chains remained eye-wateringly expensive.

According to the State of Logistics report, by the Council of Supply Chain Management Professionals, US firms saw their logistics costs surge to almost 10% of national GDP.

The report, produced with findings from consultancy AT Kearney, notes that logistics costs soared 19.6% last year, to $2.3trn – 9.1% of US GDP.

Far and away the biggest factor was inventory and carrying cost, which almost doubled, going up 90.2%, fuelled by a succession of interest rate hikes. Warehousing rents stayed in the stratosphere as slower demand was more or less matched by a deceleration of new facility construction.

On the transport side, the maritime sector (including inland shipping) saw the strongest increase, costs rising 18.4%, followed by rail, up 17.6%. Trucking costs were up 6.2% in the truckload sector and 6.4% in the LTL arena. Parcel costs rose 4.7%.

Airfreight costs climbed 1.7% overall, while domestic expenditure on air cargo was essentially flat last year, and the report authors expect airfreight spend to shrink this year. They project global air cargo revenue to reach $150bn, 25% lower than in 2022.

They are more upbeat on e-commerce, although growth flattened as consumers returned to stores and allocated more money to services. Volumes declined 2%, but are expected to grow at a compound rate of 5% over the next five years – an outlook particularly bullish for same-day deliveries, where revenues are expected to rise to $7.9bn in 2027, compound annual growth rate of 18.8% over 2022.

The forwarding sector is also expected to fare well, expanding at a compound annual growth rate of 6.3% to 2031.

Shippers are looking for more help from their logistics providers. The report says: “The requirements have never been greater, and solutions needs from shippers are off the charts.”

This goes hand-in-hand with a fundamental shift in the connection between cargo owners and logistics partners. The authors diagnosed “a shift among logistics executives from strictly transactional perspectives to a more strategic and holistic sense of the function’s role”, adding that “flexibility and resilience have overtaken cost as the key discussion points among supply chain leaders”.

As the market is settling into a “post-pandemic normalcy”, as the authors call it, they describe this as a time for logistics executives at cargo owners to review former arrangements and determine what they need after the often-frantic improvisations of the pandemic. Hence, the report has been subtitled The Great Reset.

Balika Sonthalia, senior partner at AT Kearney and one of the authors, added: “Although the market has swung back in shippers’ favour – to the detriment of carriers – we cannot emphasise enough the importance for all industry participants to begin planning for geopolitial tensions, cybersecurity threats, climate change and related natural disasters, slowing e-commerce growth and global recessionary factors.”

The report’s short-term outlook is not bright, as the authors find demand likely to stagnate or diminish through the remainder of this year. However, a downturn would likely be “mild and short,” they reckon.