Transportation

Logistics and Business Manufacturing: Signs are Positive but Economic Recovery Needs Time

Although the flow of positive economic data points to a recovery, it would take time for the U.S. economy to return to pre-recession levels.

On the positive side, government data showed that the U.S. economy contracted by a better-than-expected 1.0% in the second quarter, after plunging 6.4% in the first quarter. Exports of goods and services were down 7.0% in the second quarter, compared to a 29.9% fall in the first quarter. The Purchasing Manager’s Index (PMI) rose in August to 50.0. The Cass Information Systems Freight Index was down 16.6% in August, compared to 15.3% and 20.0% dips in July and June 2009 respectively, year on year.

However, truck tonnage for June eased 13.6% year-over-year, and cargo container volume decreased at the Ports of Long Beach and Los Angeles. A recent report from the Federal Reserve’s Beige Book indicated that weak economic activity is heading into the summer, although the overall pace of decline has stabilized, at a lower level.

Recession Hammered Business Logistics Costs

The Council of Supply Chain Management Professionals recently reported that business logistics costs, which rose more than 50% over the previous five years, fell to 9.4% of U.S. GDP in 2008 from 10.1% in 2007. It also added that total U.S. logistics costs dropped to $1.3 trillion last year, a decrease of $49 billion from 2007.

The report showed that in 2008, inventory carrying costs dropped 13%, and were the driving force behind the year’s decline in logistics costs. The decrease in carrying costs was due to both a 2.2% drop in inventory and an 11.2% decrease in the inventory carrying rate.

However, warehousing costs rose by 9.5% as warehouse managers reported that inventory turns were down substantially from earlier years as stock spent more time in warehouses. Transportation costs in 2008 increased by 2% over 2007 levels, but not enough to offset the steep decline in inventory carrying costs. Trucking, which accounts for 78% of the transportation component, increased by 1.3%, compared with 4.4% for rail, air, and ocean transport. Truckload industry capacity dropped at unprecedented rates, with freight volumes declining faster than capacity, offering little incentive for companies to keep fleets.