This week, the Council of Supply Chain Management Professionals (CSCMP), with sponsors Penske Logistics and consulting firm Kearney, released the 31st Annual State of Logistics Report to organization members and the industry as a whole.
Since the inception of this blog, Supply Chain Matters has provided both takeaway highlights and our perceptions as to key takeaways from each annual report.
The Executive Summary of the year 2020 report sets the theme. The opening statement is an important takeaway:
“At the close of 2019, the state of the U.S. logistics industry was an unrecognized last hurrah of the “old normal.”
Summarized key findings, included in-part:
- That in 2019, S. business logistics costs (USBLC) amounted to $1.6 trillion, rising 0.6 percent from the prior year. Said logistics costs were pegged at 7.6 percent of 2019’s $21.4 trillion GDP. This was noted as an improvement from the 7.9 percent reported for the 2018 period.
- The report praises logistics teams in responding to the COVID-19 crisis these past few months: “often with prescience, efficiency, and a welcome dollop of charm.” Noted was that logistics leaders were tested by new extremes, leading to a new emphasis on supply chain resilience, moving away from ultra-efficient, single-source and heavily focused supply chains into the direction of flexibility and reserve capacity to cope with uncertainty and risk.U.
- Transportation cost increases were primarily driven by surface trucking, parcel, water and pipeline cost increases. Of particular note was parcel delivery costs increases of 8.5 percent, driven by continued surges in e-commerce activity. That stated, the report indicates that parcel and last-mile delivery incurred significant innovation.
- U.S. warehouse capacity remained tight while inventory carrying costs reportedly increased by 6.6 percent. Noted was that: “Warehouses delivered the highest square footage completed in a single quarter on record- and that the market quickly swallowed it up.”
- That the acceleration in e-commerce is continuing to re-draw the historic roles of stores, distribution centers and the parcel delivery sector. That is forcing logistics providers to accelerate automation. Further indicated was that the implications of the COVID-19 crisis have reemphasized the value of technology in logistics, forcing providers previously hesitant to invest in shipment location tracking or electronic signatures to now embrace them as competitive table stakes.
Supply Chain Matters Added Perspectives
We would venture to guess that some shippers, consumers and businesses would take issue with the statement of exemplary performance of the U.S. logistics industry. After all, success is most measured by the perceptions of customers.
More to the point, and by our lens, the heightened value of the industry was the heroic actions of logistics, transportation and warehouse workers who risked their health and safety in order to keep essential goods moving in the economy. Dedicated truckers who drove their rigs long distances without the benefit of selection of food, highway restrooms, needed facilities and personal protective equipment such as masks and gloves. Similar for warehouse workers and the vast number of added workers needed to move essential goods. Even mighty Amazon was overwhelmed and had to rely on other industry providers to move goods to customers.
We were disappointed of the lack of mention of such efforts in this latest State of Logistics report. Indeed, it was the workers who had to demonstrate ingenuity and the use of advanced technologies to help get the job done.
U.S. logistics providers had their own challenges to overcome, including a global transportation network that failed its mission at the height of COVID-19. Large numbers of blank sailings by ocean container lines, the literal shutdown of the commercial airline industry and other added disruptions indeed required extraordinary efforts. Front-line medical workers and healthcare providers pleading for needed equipment and drugs, essential supplies stranded at ports and the subsequent misallocation of large numbers of shipping containers added to the challenges and frustrations.
In the news conference held to premiere this report, panelists noted that third-party logistics providers (3PL’s) are now evaluating customer segmentation based on required service levels, as well as how space is managed on behalf of customers as new opportunity areas for added agility. Some 3PL’s previously reluctant to supporting online customer fulfillment needs are rethinking their strategies.
A question posed by this Editor was whether the discernable movement of sourcing away from China to ward either other Asian nations or regional near-shoring would uncover new vulnerabilities in logistics infrastructure. The consensus response from panelists was yes, but in a short-term timeframes as receiving nations increase their logistics infrastructure investments. However, we would add that it took China multiple years of infrastructure and now technology investments to develop its recognized world class logistics capabilities.
Four years ago, our perspectives of the 27th Annual Report included our takeaway tagging of: An Industry in Transition. We cited a particular report observation: “The pace and breakthrough nature of technological innovation- and the rate of which it is adopted- will heavily impact supply chain assets, processes and people.”
Four years later, with the:
- Increased and likely permanent growth in online customer fulfillment volumes continuing.
- More succinct signs of industry consolidation as carriers, brokers and services providers attempt to broaden services offered by leveraging advanced technology.
- Massive health and economic concerns brought about by a global pandemic that tested the extreme limits of logistics and transportation networks.
the industry has indeed reached a crossroads. As the report authors point out clearly, the pendulum is swinging toward needs for added flexibility and adaptiveness in capacity, resources and in operational visibility and decision-making.
Becoming a trusted partner implies shared investments in advanced technology for the benefit of all stakeholders. Increased volumes of shipments and goods driven by e-commerce are not a problem addressed solely by continual heighted shipping rates and special handling surcharges.
Indeed, the “old normal” is no longer. The combination of targeted technology, more flexible automation and a more tech savvy logistics workforce are the catalysts for the new, post-COVID normal of added agility and resiliency.
Perhaps this 2020 report will indeed be the motivation for industry change.
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