Dive Brief:
- Logistics costs increased across all modes of transportation in 2017, according to CSCMP's Annual State of Logistics report.Total logistics costs were $1,149.4 billion or 7.7% of nominal GDP in 2017, a step up from 7.6% of GDP in 2016.
- As the economy grew and e-commerce continued to take off, it forced further capacity constraints on companies by compounding labor shortages and rising demand, the report said.
- Pricing power shifted from shippers to carriers, noted Sean Monahan, a partner at A.T. Kearney who helped author the report, in an email to Supply Chain Dive. To meet customers' demands and mitigate costs, shippers will have to develop strategies that address the whole supply chain.
Dive Insight:
Capacity constraints and rising costs across all modes of transportation are forcing companies to adapt using holistic strategies that address every aspect of the supply chain.
"For company leaders, striking the right balance between price and risk has never been more important — or more difficult," the report said. "Shippers looking to control logistics need creative thinking and innovation, and that means opportunity for start-ups and new technologies offering novel solutions to transportation challenges."
A "perfect storm" of driver and real estate capacity shortages, labor shortages and rising demand is pushing costs up in all modes of transportation, said Joe Carlier, senior vice president global sales at Penske Logistics, which presented the CSCMP report, in an interview with Supply Chain Dive.
As the economy expands, "capacity is the key issue of all these modes," Carlier said. Consumers are demanding more e-commerce goods at quicker speeds, forcing companies to look for more labor, warehouses and vehicles.
Shippers are particularly affected by these changes, as "[carriers] gained pricing power as demand rose and electronic logging devices exacerbated driver shortages," the report said.
The rising costs have brought decision making to an executive level, Carlier noted, as companies seek to "tighten up their network" and mitigate costs within their existing supply chains. Technology will be key to enhancing capacities too, but shippers' solutions will require a change in strategy.
"The shipper behavior is going to change," he said. "We're going to see more collaboration within the same verticals addressing this challenge together."
While shippers now tend to have one-to-one relationship with customers, they'll soon merge networks to be able to meet consumers' demands.
Shippers will also have to consolidate, partnering with companies that offer brand recognition, the ability to invest in new technologies and services for all parts of the supply chain.
"Because of these complexities, shippers are going to have to look at their supply chains as a whole," Carlier said. "They're looking for a partner that can look at their supply chain holistically. That will lead to strategic consolidation."