2015 was a different year for the logistics industry. For the first time in more than 10 years, the Federal Reserve took the initiative to slightly increase interest rates, but the hopes for a robust start to 2016 were quickly dashed. The prices of fuel continued to drop, and growth in the logistics industry slowed to a painstaking crawl of less than So, let’s take a closer look at what findings were released within the 2016 State of Logistics (SOL) report and how they impact current and future logistics processes.
Slow Growth Rate and Low Percentage of GDP.
The logistics industry had become accustomed to a steady compounded annual growth rate (CAGR) of approximately 4.6 percent annually between 2010 and 2014. Yet, the CAGR of 2015 fell by 2 percent. As a result, logistics in the U.S. made up only 7.85 percent of the gross domestic product (GDP) of 2015.
This decline was not solely indicative of problems within the industry. Instead, annual transportation costs rose continued to rise by 5.5 percent. In other words, the industry would have grown by 12.1 percent if inflation had not significantly impacted expenses. In fact, logistics costs were only $1.48 trillion in 2015, compared to $2.15 trillion in 2014. As a result, more logistics operations will be more carefully monitoring their expenditures in the coming months to further the trend.
Compared to global GDP of countries with immature or novice logistics operations, the growth of logistics costs in the U.S. are significantly less. Although the overall GDP percentage of the U.S. logistics industry is not as much as it once was, it has remained relatively stable within a 1-percent margin over the last 10 years. The following graph from the 2016 SOL reveals how logistics as a percentage of U.S. GDP has changed since 2006
Transportation and Storage Cost Insights From the 2016 State of Logistics.
Changes in transportation and storage of inventory costs made up significant portion of the 2016 SOL. Overall transportation costs rose by 1.3 percent between all possible modes. However, less-than-truckload shipping revenue rose 7 percent and small package shipping rose by 8 percent. Meanwhile, full truckload (FT) revenue increased by 3 percent, and intermodal revenue rose 2 percent. However, ocean and rail transport saw significant decreases in previous demand, but these modes still managed to see slight growth of 2.1 percent. Unfortunately, the demand for coal fell nearly 12 percent in 2015, pushing overall demand for shipping down and accounting for the low average of growth in transportation costs.
Inventories are a major issue analyzed by the 2016 SOL as well. While inventories had steadily grown since 2005 at 5-percent annually, growth of inventories in 2015 flattened out. Yet, the inventory cost increased in 2015 by 5.1 percent due to a rise of 42 points in weighted average cost of capital. In other words, even though the actual amount of inventory started to decrease, changes how the growth was calculated resulted in the appearance of a growth of inventory on paper. In terms of physical requirements, inventory levels remained the same as 2015.
Small Package and Express Sectors of Logistics.
As explained by the high-than-average growth rates in small package and parcel shipping in 2015, the parcel and express sector of the industry shows the most promise for continued growth throughout 2016. As of now, the parcel and express sector represents approximately $82.2 billion of the logistics industry. Meanwhile, third-party logistics providers have also entered the equation into how the future of the logistics industry will evolve.
3PLs in the 2016 State of Logistics.
The hallmark of 3PLs within the 2016 SOL is technology, efficiency and advancement. Technology from 3PLs now accounts for 11 percent of all U.S. logistics costs at approximately $196 billion. Moreover, information technology (IT) developments by 3PLs are expected to increase steadily through 2018 at an annual rate of 5.6 percent. Yet, actual investments into IT could easily exceed these predictions as newer technologies are developed and deployed throughout the supply chain. For example, blockchain technology may significantly change the amount of revenue spent on IT needs in the next few years.
The 2016 State of Logistics Report revealed many pain points faced by the logistics industry in 2015, but its insights lack value if not applied to your organization. Due to the FAST Act, the logistics industry will receive a sum of approximately $900 throughout 2016 to help combat rising costs through better roads and infrastructure.
Regardless of current shipping and logistics practices, you need to understand what the findings of the report mean for the industry. In other words, you can leverage the information within the report to create a more productive second half of 2016 and prepare for a better way to meet the needs of customers without increasing costs. For more in-depth information about the contents of the 2016 State of Logistics Report, watch the following video from the Penske Logistics Official YouTube Channel.