Logistics Spending Jumped 11.4% on Strong Economic Growth

U.S. businesses spent $1.64 trillion on transportation and warehousing costs last year, with demand slowing in 2019

By Jennifer Smith
June 18, 2019 9:00 am ET
Rising logistics costs consumed a bigger share of U.S. corporate spending over the past year as companies rushed to take advantage of an improving U.S. economy, according to a new report.

Spending on transportation, inventory-carrying costs and other shipping-related expenses as a share of gross domestic product last year reached its highest level since 2014, the Council of Supply Chain Management Professionals said in its annual State of Logistics Report, a surge the report said is cooling this year on more plentiful capacity and moderating shipping demand.

U.S. businesses spent a record $1.64 trillion on logistics in 2018, up 11.4% from the prior year and accounting for 8% of GDP, the report said. Industry experts view the logistics share of GDP as a measure of the efficiency of transportation and distribution networks, and last year’s figure was sharply up from a 7.5% share in 2017.

With economic growth expected to slow in the second half of 2019, companies that built up inventories ahead of expected tariffs could pull back their demand for logistics services this year, “easing the price increases that bedeviled shippers” during last year’s sizzling freight market, the report said. “This is good news for shippers, but carriers will struggle as volumes fall.”

Logistics costs should still rise in 2019, though not as abruptly as last year, when booming demand and tight capacity strained supply-chain budgets and sent shippers scrambling to book transportation, said Michael Zimmerman, a partner at consulting firm A.T. Kearney Inc. and the lead author of the report.

Trucking rates “will come down but not as dramatically as they have in the past,” Mr. Zimmerman said, while costs tied to warehousing and labor continue to rise. A.T. Kearney forecasts contract pricing for over-the-road truck shipments will decline by between 3% and 5% in 2019.

U.S.-China trade tensions are a wild card that could weigh on shipping demand in 2019. Retailers, manufacturers and wholesalers pulled shipments forward in late 2018 in anticipation of rising levies on Chinese imports. That jammed warehouses and strained logistics capacity around major U.S. trans-Pacific gateways.

Storage and other inventory costs jumped 14.8% in 2018 as inventories measured by value increased 4.6% compared with the prior year, the report said.

Commerce Department figures suggest that inventories may be getting ahead of demand, with the inventory-to-sales ratio for all U.S. businesses hovering around 1.39 this spring, after falling to a three-year low of 1.34 in May and June of 2018.

Accelerating tariffs may have contributed to softer-than-usual demand this spring for Omaha, Neb.-based trucking company Werner Enterprises Inc., whose retail customers account for 52% of revenue, Chief Financial Officer John Steele said at a June 5 industrial conference in Chicago.

“It appears that several [retail customers] grew their inventories in that February-to-March time period,” which could have led to destocking in April and May, Mr. Steele said. A number of retailers notched same-store sales improvement from February to April, “so hopefully that will translate into better freight volumes for our retail customer base going forward,” he said.

Lee Clair, a managing partner at Transportation and Logistics Advisors LLC, a supply-chain-strategy consulting firm, said freight demand this year has “moderated into something below where we were last year, but it’s higher than anything that existed before that…There’s no way it could continue to boom the way it was.”

Overall transportation spending increased 10.4% overall in 2018, with spending on intermodal truck-rail transport soaring 28.7%.

Write to Jennifer Smith at [email protected]