Logistics, GDP and Rising Costs

The cost of logistics as a percentage of gross domestic product was once the ultimate measure of logistics efficiency. Today, not so much.

For two decades, supply chain managers worked to bring that percentage down from higher than 16 percent in the early 1980s to 8.5 percent in 2003.

That reduction reflected a dramatic drop in logistics and transportation costs driven by deregulation, new technology and the growth of the logistics industry.

In 2011, the figure was 8.5 percent once again, after rising and falling during the 2003-2006 expansion and the 2007-2009 recession.

The late Bob Delaney tracked the GDP percentage closely in the annual State of Logistics report. He saw it as comparable to a batting average in baseball.

But the ballpark changed in the last decade — or maybe it was the game itself. Starting in 2004, the logistics GDP percentage began to climb again.

It was if the field in the ballpark were suddenly tilted so batters had to run uphill to round the bases. By 2007, the percentage was back up to 9.9 percent.

That wasn’t welcomed as good news at the time. Many observers asked if every last drop of efficiency had already been wrung from supply chains.

That wasn’t the case. The increase in the cost of logistics as a percentage of GDP had more to do with the rising cost of both domestic and global transportation.

“Managing logistics in today’s complex global environment costs more,” Rosalyn Wilson, who took charge of the report after Delaney died, said in 2005.

In other words, the cost of logistics is rising along with other costs in the global economy. Logistics isn’t less efficient today — its just more expensive.

When the recession began to dampen demand, the logistics GDP percentage dropped, bottoming at 7.9 percent in 2009 as shipping demand sank.

Now the figure is heading back toward 10 percent, climbing 2.6 percent in 2011, Wilson said Wednesday at the launch of the 23rd annual State of Logistics report.

That’s the level she expected logistics costs as a percentage of GDP to reach in the mid-2000s, before the Great Recession shattered economic forecasts.

Shippers are trying to restrain those costs, but that job is getting harder. No matter how efficient you’ve become, as costs rise you need to become more efficient.

That increasingly means greater collaboration, or cooperation, among retailers, vendors, transport operators and third-party logistics providers.

“The new world is forcing us to collaborate because we have to,” Rick Sather, vice president of customer supply chain at Kimberly-Clark, said at the launch.

Look for even greater efficiencies in managing mobile inventory across the supply chain, from source to store shelves, as mobile technologies spread in coming years.

Then perhaps we can hold those logistics costs to 10 percent of GDP.

Contact William B. Cassidy at wcassidy@joc.com. Follow him on Twitter at @wbcassidy_joc

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