The Inovis Blog

I can already see myself as an elderly person. I know exactly what I’ll be saying to the youthful folks. It’ll be something like, “You’re paying how much for gas?! Back in my day, gas was under a dollar…and when it rose up to four bucks a gallon, we all pitched a fit! And now it’s how much?! The world is going to heck in a hand basket, I tell you.” Probably after that, I’ll mumble something about how I walked ten miles to school every day in 24 inches of snow, and my great grandkids will ask me why there was so much snow in Georgia, and then I’ll mumble something about ungrateful kids and walk away…

Anyway, why am I bringing this up? The annual state of logistics report was recently released, and I must admit that the world of logistics is, well, going to heck in a hand basket. According to the report, a combination of rising fuel costs and rising inventories resulting from a slowing economy and quite possibly the effects of offshoring drove the cost up from 9.9% in 2006 to an exceeded 10% of GDP in 2007 for the first time since 2000.

While two decades seemed to show a steady improvement in logistics cost, the same may not be said anymore. The rest of the report doesn’t seem to be very heart warming either.

* Rail capacity challenges loom ahead as well. Rail car demand is expected to double over the next two decade, and there are no clear plans to add sufficient capacity. Rail carriage is “already suffering under the strain of congestion, with trains forced to stand aside for hours because of one-track rail lines.”
* The 52.3% increase in logistics costs over the past five years far exceeds the growth in GDP over that period.
* Inventory management gains have stalled at a macro level. The inventory-to-sales ratio across the economy, after years of decline, has stalled and even risen slightly over the past three years. (Note, this may in part be offshoring, in part the logical trade to hold more inventory and reduce transportation costs to optimize total costs).
* Some companies are looking at providing transportation to get workers to distribution center jobs. Others are looking at longer shifts and four days on, three days off schedules.
* The truck driver shortage has ebbed a bit of late, largely due to the movement to driving from workers losing jobs in the shrinking construction sector. That trend too will again reverse itself.
* Booming exports have been a boon to east coast ports. A combination of export growth and increasing inbound volumes led Savannah to 27% growth in TEUs in 2007.
* Given the high costs, and the swing towards inventory versus transportation expense, air freight traffic grew just 1.1 percent in 2007, the worst performance for the mode since 2003.
* Perhaps most amazing, transportation costs of a percent of GDP are back where they were 20 years ago, when deregulation of the trucking industry was ushering in years of transportation cost declines. Wow.

What do you make of all of this? Will it get worse before it gets better or do you think positive changes are right around the corner?

View the rest of the rundown of this year’s report here>>