industry insights

After several tumultuous years, the supply chain continues to improve, and shippers and carriers are getting back in sync, according to the 34th Annual State of Logistics Report. Even still, it remains important for those in the supply chain to focus on relationships, efficiency and resiliency amid rising costs and economic uncertainty.

“If the past years have taught us anything, it is that uncertainty is now a near constant in the global economy, and the smartest way to respond in good times is to gather resources for when conditions suddenly shift again,” according to the report, entitled The Great Reset.

The Annual State of Logistics Report is produced for the Council of Supply Chain Management Professionals (CSCMP) by the global consulting firm Kearney and presented by Penske Logistics.

In 2022, the market swung back sharply in shippers’ favor, and supply and demand largely rebalanced across all transit modes. However, Balika Sonthalia, a partner with A.T. Kearney and co-author of the report, said it is important for companies to take steps to remain the shipper of choice because the pendulum will eventually swing. “We’ve seen this before, and carriers will remember how you treated them,” she said.

Sonthalia added that third-party logistics providers are continuing to provide valuable guidance to shippers. Before the pandemic, logistics was often considered a side function, but it has continued to gain attention and is now widely seen as a strategic differentiator. “Companies look at 3PLs less for pointed solutions and more for strategic partnerships to run certain flows soup to nuts,” she said.

Overall Costs and Trucking Capacity

Those partnerships are increasingly important as companies work to manage costs and capacity. Costs have increased, with overall U.S. business logistics costs rising 19.6% to $2.3 trillion in 2022, compared to $1.85 trillion last year, representing 9.1% of the national GDP — the highest percentage of GDP ever. It also marks a 46% USBLC increase between 2020 and 2022.

Plus, transportation costs reached $1.39 trillion, up from $1.3 trillion in 2021. Road freight, the most significant segment of U.S. logistics expenditure, increased to $896 billion from $844.5 billion in 2021.

Road freight saw little change in overall demand, but capacity increased throughout 2022. Sonthalia said the dry and load-to-truck ratio — a figure calculated by dividing the total loads by the number of available trucks — is at the lowest it has been since June 2020, which is a signal of the level of capacity available in the market.

As a result of shifts in capacity supply and demand, there was a greater spread between spot and dry rates than in previous years, according to the report. From January 2022 to January 2023, the spot rate dropped 23%. The changing dynamics caused shippers to seek a new balance among dedicated, private and one-way services.

Resiliency and Near Shoring

Sonthalia said costs have always been a factor in supply chains, but resilience has become a top priority, which is leading to more diversification and reshoring. “I think we’ll see more diversification by volumes. As that happens, your origin for shipments changes, and there is an entire ripple effect,” she said, adding that U.S. companies have been moving supply chains closer to home. The report noted that American imports of Mexican manufactured goods grew 26% last year.

Visibility is an essential tool when increasing resilience, Sonthalia said, explaining that having visibility into inventory lets shippers make strategic decisions to pivot quickly if a disruption occurs. Technology can provide the necessary visibility to increase resiliency while helping reduce costs.

According to the report, 3PLs are investing heavily in their technology offerings, with respondents reporting that 96% of 3PLs have migrated to the cloud compared to 86% of shippers, and 80% of 3PLs are investing in Internet of Things technology compared to 77% of shippers.

Other Key Findings:

• E-commerce sales remain strong. In 2022, the U.S. e-commerce market grew by 8% to $1.03 trillion compared to $871 billion in 2021, constituting 14.5% of the entire U.S. retail market.
• U.S. parcel market costs increased by 4.7% compared to 2021.
• Motor carrier costs grew 6.1% year over year. The report noted that carrier margins were threatened by low rates and higher resource costs.
• Class 1 railroad costs increased 17.6% year-over-year. Railroads saw operating income increase by 8% and total revenue increase by 14%. However, rising costs undermined operating ratios, and the sector suffered from service-related issues, ongoing congestion and high-profile derailments.
• Air freight costs increased by 1.7%. Worldwide air cargo revenue is projected to reach approximately $150 billion in 2023, 25% below 2022 but still 50% higher than the pre-COVID revenue figures from 2019.
• Domestic water costs increased by 18.4%. Major ocean liners saw combined global operating profits of $215 billion in 2022, but the trend has lost steam, and 2023 profits are projected at $43 billion, an 80% year-over-year decrease.

The full report is available to download here: https://www.penskelogistics.com/insights/industry-reports/state-of-logistics-report.