Increasingly slim capacity drove soaring costs in US logistics in 2018

Amid a booming economy, United States Business Logistics Costs (USBLC) rose 11.4% to reach $1.64 trillion, or 8% of 2018's $20.5 trillion gross domestic product (GDP)

A report from A.T. Kearney notes that supply chain capacity is tight enough that a number of major companies have reported in their Securities and Exchange Commission (SEC) filings that they exceeded their 2018 supply chain budget spending.

Why are supply chain costs rising?

  • The retooling of supply chains to account for more e-commerce sales; online purchasing increased by 14.2% last year. The need for smaller, more costly warehouses has spiked.
  • Extremely high utilisation of existing truck fleets limits available freight capacity and drives up rates.
  • Increasing government regulations on driver hours-of-service causing smaller trucking firms to cease operations, consolidate or be acquired by larger transportation companies.
  • Tight US labour market and higher wages for truck drivers and warehouse workers; attracting and retaining labour in general remains challenging for transportation and logistics companies.

How are innovations driving today's state-of-the-art supply chains?

  • Silicon Valley has devoted time, energy and resources to automation and robotics with inventions like automated trucks and automated warehouses.
  • Vehicle electrification will lead the way to a more sustainable transportation network.
  • The upgrade to a 5G communications network is on the horizon, which will improve logistics operation execution; planning and management; and high-security encryption.

"The logistics industry is at a new crossroads," explained Michael Zimmerman, partner with A.T. Kearney and co-author of the 2019 report. "It has overcome a tough and exhausting year. Now, demand has softened, and growth is in doubt—but not to the point where a steep decline is visible, a context we summarize in the report's title, 'Cresting the Hill.'"

The logistics study is written by A.T. Kearney and presented by Penske Logistics.

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