The days of low shipping costs may soon come to a close as the rising costs of the logistics industry has placed a burden on big companies.
According to Rosalyn Wilson — author of the Council of Supply Chain Management Professionals’ annual State of Logistics report — who was cited by The Wall Street Journal, the costs involved in the logistics process are set to increase. This means everything from paying truck drivers, storing goods and getting products shipped out will likely cause rising logistics costs.
So what’s the factor cited in these rising costs? Improved economy, less capacity and coming interest-rate increase, Wilson said in the report. She also noted that as shipping volume increases, the decreased capacity space will cause issues for the industry — impacting the trucking business the most.
Wilson’s report, according to WSJ “measures the total transportation and logistics spending by U.S. companies, shows businesses have kept supply chain costs tamped down tightly since 2009 as the economy has moved forward in fits and starts.” But because the industry hasn’t invested enough, it hasn’t been able to keep up with the rising costs. This comes at a time where the increase in goods being shipping around the U.S. has caused the need for more investment in equipment.
“We’re going to have a total massacre in freight pricing if demand rises in a serious way and the capacity remains where it is,” Wilson told WSJ. Trucking companies will “raise rates 10 percent and more and more companies will follow suit…they don’t have a choice.”
In the council’s report, it indicates that the inventory carrying rate had hit all-time lows following the recession — sticking there for some time. Logistics spending, according to the report, was 8.3 percent of GDP in 2014 — where it has been for about four years — much lower than the 10 percent ratio in the 2000s, WSJ reported. The year 2014 also brought about $1.45 trillion in 2014, but that was only roughly $30 billion more than it was seven years ago.
Now, logistics companies face higher expense costs, which Walter Kemmsies, chief economist at Moffatt & Nichol Inc., told WSJ will make it so companies can’t grow their warehouse space at a time when more products are being ordered.
“Warehouse utilization rates are north of 95 percent right. When that’s the case, the warehouse managers begin to understand they’re not charging enough,” Kemmsies told WSJ.
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