U.S. business spending on logistics services dropped 11% in 2023 to $2.4 trillion as supply chains normalized in the wake of massive disruption caused by the COVID crisis, according to the Council of Supply Chain Management Professionals.
U.S. business spending on logistics services dropped 11% in 2023 to $2.4 trillion as supply chains normalized in the wake of massive disruption caused by the COVID crisis, according to the “State of Logistics” report from the Council of Supply Chain Management Professionals released on Tuesday. Logistics costs are still relatively high after rising 22.4% in 2021 and nearly 20% in 2022 from a baseline of $1.5 trillion prior to the pandemic. More significantly, the ratio of business logistics costs to nominal U.S. GDP last year was 8.7%, compared to 9.1% in 2022 and 7.7% in 2019. The lower the ratio, the more efficient the country’s logistics system because the cost of moving goods consumes a smaller piece of the total economic pie. Between 2012 and 2019, the ratio of logistics expenses to GDP only ticked above 8% one time. The report, compiled by Kearney, said there is increasing recognition among logistics executives that volatility is the normal condition for supply chains, which makes it critical to have a robust, flexible transportation and warehousing network. Many shippers and logistics service providers have not meaningfully invested in technology and assets that make it possible to minimize disruption, such as longer transits circumnavigating Africa to avoid Houthi rebel missile attacks in the Red Sea or low water levels in the Panama Canal limiting voyages, by pivoting to alternative freight services, they said. Freight demand was tepid last year, although ocean and air volumes picked up in the fourth quarter with a large push from e-commerce. The slack demand coincided with excess transportation and storage capacity, resulting in low cargo rates. The authors projected a tightening of capacity and potential upturn in rates by the second half of this year — something that is already happening in air and ocean freight. 2023 was a difficult year for motor carriers with a huge capacity overhang that coincided with sagging volume and hammered down rates. Although more than 1,000 truck brokers went out of business the decrease was less than expected because many of them lived off outsize profits during the prior two and a half years, said Kearney’s Josh Brogan, during a virtual briefing for journalists last week. “Until there is an increase in the rebuilding of retail and business inventories, improvement in consumer sentiment and housing market index, and rate cuts by the Fed, we do not expect the balance of power to change and reactivate idle transportation assets,” the report said. Trucking prices could begin to recover late in the fourth quarter or in early 2025. The parcel market is experiencing declines, underscored by a 7.4% drop in domestic volumes at UPS and Amazon surpassing FedEx and UPS in total U.S. deliveries in 2023. Large shippers have diversified their parcel carrier base, including regional and local carriers, and learned how to shop for the best rates in a convoluted pricing environment
