The annual State of Logistics report is just out again with much fanfare from Rosalyn Wilson and CSCMP, with the headline news that overall relative US logistics costs were modestly down in 2014, to 8.3% of GDP, versus a revised 8.4% in 2013.

The subhead should be 2014 looked a lot like 2013.

As usual, Wilson presented the study at the National Press Club in Washington DC on Tuesday, followed as it has been for the past few years by a panel discussion, this year moderated by Kevin Smith of Sustainable Supply Chain Consulting (and former head of supply chain for CVS stores) with participants from Penske Logistics, BNSF Railway, Boeing, Domino's, and Yusen Logistics.

In 2007, logistics costs rose to a recent record of 9.9% of GDP, as soaring oil prices and tight trucking capacities capped a multi-year surge in logistics costs. By 2009, logistics costs had fallen to just 7.9% of GDP. At 8.3%, we are at the lowest percentage since 2010, still well below that 2007 peak, and substantially below all the years from 2004 through 2008.

As a comparison, logistics costs as a percent of GDP were estimated at 15.8% in 1981 (as trucking deregulation was just starting and interest rates were high) and 12% in 1985. So as an industry we have made much progress.

To make sense of all that, a graph of the last 10 years of logistics costs as a percent of GDP is provided below.

This notion that relative logistics costs actually fell a tick in 2014 frankly surprises me, as truck rates by many measures were up strong year over year, as were warehouse rents, but diesel costs of course were down sharply in the last 4 months of the year, and rail pricing power dropped considerably,

All told, US logistics expenses, as measured by this methodology, were up 3.1% in 2014, but nominal GDP rose a bit faster than that - thus the fall in the ratio of logistics spend to GDP.

Wait, you may be saying, GDP rose only 2.2% in 2014. No, that was the number for the growth of "real" GDP, which reduces nominal GDP by an inflation factor. Since all the logistics costs in this report are measured in nominal terms (only way to really do it), the comparison has to be against the nominal not real GDP level.

Source: State of Logistics Report/CSCMP

This represents the 26th edition of the report, which was launched in 1988 by the late Bob Delaney and sponsored by his company, Cass Information Systems. Somewhere along the way, CSCMP took over the sponsorship, and in the late 1990s Wilson, who has a long career in the logistics industry, began to support Delaney in his efforts. Upon Delaney's passing a few years later, Wilson took on the challenge alone, largely keeping the existing methodology.

Penske, meanwhile, more recently took on the lead corporate sponsor role. This year's report is also much more stylized than previous editions, with fancier graphics.

Ok, before I highlight a few more of the top data from 2014, a small editorial comment. I continue to see observers in the supply chain trade press and elsewhere somehow miss the key point of changing logistics costs, reacting almost in disappointment when logistics costs don't keep up with GDP.

Well, if you are a carrier or a 3PL maybe that makes sense. But if you are a shipper, or observer of the US economy, logistics costs falling as a percent of GDP is a sign of progress, all other things being equal. The US has had lower logistics costs relative to GDP than most other nations - a competitive advantage. We should celebrate lower logistics costs, whether they were achieved from falling oil prices, modest rate hikes, a bit of luck in market dynamics, or all of the above.

With that off my chest, the total cost of US logistics was estimated at $1.449 trillion for 2014, up $43.4 billion from 2013. A lot of elements go into that number, from warehouses to trucking to pipelines, but the three main categories are inventory carrying costs, including the costs of warehousing (32.8% of the total logistics spend in 2014), transportation costs (62.6%), and administrative costs, mostly related to logistics IT spend not otherwise captured in the other two categories (just 4.6% of the total).

You can see this breakdown here in our Supply Chain Graphic of the Week.

Within transportation, trucking-related costs comprise 77.3% of total transport costs and 48.4% of total logistics spend, while other modes (rail, water, pipelines, freight forwarders, etc.) account for 22.7% of transportation spend and 14.1% of the total logistics costs.

All those numbers above were little changed in 2014 versus 2013 or really the past few years. Trucking's share of transportation spend rose just one tenth of a percentage point after falling very modestly over the past few years.

Perhaps surprisingly, “local” trucking costs - presumably deliveries of goods like beer and furniture - represent about 31% of total trucking spend, versus 69% for “intercity.”

The approximate $1.45 trillion in total logistics spend was 29.4% above the 2009 bottom, and was finally higher in absolute terms than the peak year of 2007, when spend was $1.42 trillion.

That it took seven years to get back to the logistics spending level we saw in 2007 is really amazing, and shows just how deep the great recession really was. Greater logistics efficiency, such as the rise in intermodal volumes, reduction of empty miles, and other tactics, may play some role here, but I'll note US manufacturing output just got back to 2007 levels in July, 2014.

Inventory carrying costs were up 2.1% in 2014, down from a rise of 2.8% in 2013. But most of that rise in carrying costs in absolute terms came from a similar rise in total inventory levels. The higher the absolute level of inventory, the higher the absolute spend for insurance, taxes, depreciation, etc.

The interests costs of holding inventory were again almost negligible - just $2 billion, according to the report's methodology, which just applies the rates for “commercial paper” (short term corporate bonds) to average inventory levels. Those rates remain amazing low - just 0.09% or so for 2014, though that was up from 0.07% at the beginning of the year.

We couldn't find it in this year's report, but in the 2014 Wilson noted that if the 2007 interest rate of 5.07% was in play, interest on carrying the inventory and thus total logistics costs in 2013 would have increase by $128 billion. That, in turn, would have changed logistics cost as a percent of GDP from 8.4% to over 9.0% - a sizable difference.

The impact would have been similar in 2014 - but of course if interest rates were that high, companies likely would have pared back on inventory levels.

Here are a few other highlights from the data:

Overall transportation costs were up 3.6% in 2014, mostly "because of stronger shipment volumes," the report says. The data is conflicting, because the number of shipments is said to have decline a bit, while the ATA's tonnage index rose 3.5% for the year. The report notes correctly that trucking capacity was very tight for most of 2014, naturally pushing rates higher.

Yet, overall trucking spend was said to be up only 3.0% in 2014 - including the effects of higher volumes. At first blush that seems impossible - the Cass Linehaul Index, which measures per mile truckload rates, was up more than 5% year over year every month in 2014 starting in March, and rose over 7% in four of those months. I can only guess that the impact of lower diesel prices pushed the total growth in trucking spend down, but I think most companies saw their total freight spend - including the effect of volume increases - up by more than 3.5% last year.

Wholesale inventories increased 3.9%, retail inventories rose only 2.3% , and manufacturing inventories were actually down year over year in 2014. This is in absolute terms, in a year when GDP rose 3.5%. Despite the strong trend in industrial production for much of 2014, manufacturing inventories continued to erode well into 2015, the report says. Maybe all that supply chain software is really paying off.

Intermodal freight rose an impressive 10.6% in 2014, a trend that continues on. Total rail ton-miles rose 6.4% , while rail spend rose about the same, 6.5%, implying relatively flat rates, and indeed revenue per ton-mile was basically flat.

Air freight continues to be troubled. Total air cargo revenue went down 1.2% in 2014; domestic was up 0.4% and international was down 3.6%.

There is lots more or course, but that's all I have room for.

The report is available at no charge for CSCMP members, of which I am one. It can also be purchased by non-members. We will do a video summary in our news broadcast with CSCMP coming up on Monday.

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