Shippers in the United States cut their logistics spending last year by $244 billion, or 18.2 percent, reducing the logistics share of the economy to a historic low in a rush to scale back inventories and cut transportation costs, according to the Council of Supply Chain Management Professionals’ annual State of Logistics Report.
The rapid reduction pulled logistics spending as a percentage of U.S. GDP down to 7.7 percent, down from 9.3 percent the year before. It was the lowest level recorded in the nearly 30-year history of the report and the sharpest year-over-year contraction ever measured, according to the report on logistics released Wednesday.
Kevin Smith, president and CEO of Sustainable Supply Chain Consulting, speaks about the state of logistics.
Usually a closely watched measure of supply chain management efficiency, the annual CSCMP report on 2009 logistics instead portrayed industrial shipping in sharp contraction as companies responded to the deep recession in the United States and around the world. The report said overall logistics spending fell almost $300 billion from the start of the downturn in 2008.
Last year, the report said, overall inventory costs for companies in the United States plunged a record 14.1 percent, the result of a 4.6 percent drop in inventory levels and a 10 percent declining in inventory carrying costs due to lower interest rates. Direct transportation spending fell 20.2 percent.
During the previous five years, logistics spending had risen more than 50 percent — much faster than growth in GDP. Last year, U.S. GDP declined 2.4 percent but logistics costs shrank 18.2 percent, the report said.
“Although virtually every company involved in the supply chain cut costs and increased productivity, this precipitous drop (in 2009 logistics spending) was caused more by the rapid decline in shipments and the cutthroat rate environment,” according to Roslyn Wilson, a logistics industry consultant who prepared the report for CSCMP.
Last year’s reduction in logistics spending was across-the-board. Wilson estimated shippers spending fell 20.3 percent for trucking, 20.6 percent for rail and 21.6 percent for water transportation. Air freight carriers reduced cargo capacity 12 percent in response to slumping volumes. Warehousing costs fell 2 percent as demand weakened.
“I think the best we can say for 2009 is that it is good that it is behind us,” the report said. In a recovering economy, logistics savings may be harder to find, Wilson said.
The report noted transportation costs this year are rising for all modes as demand increases and capacity tightens. “The economy is showing stronger signs of recovery as we move into the second half of 2010 and it is likely that we will have capacity problems in many areas by year’s end, the report said.
Companies are still being cautious about adding inventories, howev