Business logistics costs totaled $1.2 trillion last year and accounted for 8.3 percent of the nation’s GDP, according to a new report.

Overall United States logistics costs rose 10.4 percent, or $114 billion, to total $1.2 trillion in 2010, according to a new report from the Council of Supply Chain Management Professionals (CSCMP). Business logistics costs increased to 8.3 percent of the nation’s gross domestic product last year, up from 7.7 percent in 2009.

Both major cost components — inventory carrying costs and transportation — were up more than 10 percent in 2010, the CSCMP says in its 22nd annual State of Logistics Report, sponsored by Penske Logistics.

“The increases in inventory and transportation costs reflect both increases in volumes and the actual ‘per unit’ costs, themselves. So the actual decline in interest rates during the year, for example, was more than offset by the amount of increase in total inventories,” Dan Gilmore, editor of Supply Chain Digest, wrote in an analysis of the CSCMP findings. “Absolute U.S. business inventories increased by about 10 percent in 2010 to $2.1 trillion, though with an inventory-to-sales ratio at the end of the year of just about 1.25, that metric is near the recession low points, after rising a bit earlier in 2010.”

Inventory carrying costs increased 10.3 percent last year, totaling $396 billion, largely due to higher costs for taxes, obsolescence, depreciation and insurance, which collectively amounted to $280 billion. These expenses were offset by “a further drop in the inventory carrying rate and warehousing costs,” an announcement of the findings states.

“As defined in the report, inventory carrying costs include interest on overall inventory held in storage; warehousing expenses; taxes; and obsolescence, depreciation and insurance,” James Cooke, editor-at-large for DC Velocity, notes. In absolute terms, year-over-year warehousing costs declined 6 percent in 2010, the report says.

Meanwhile, transportation costs were up 10.3 percent from 2009 levels, totaling $768 billion. Cost increases in transportation for 2010 were primarily for increased fuel costs, which were up about 20 percent, as well as some increases in volumes.

On an absolute basis, trucking costs, which accounted for 78 percent of transportation costs, increased 9.3 percent in 2010, totaling $592 billion.

“The spend in all other modes combined rose 15.4 percent. That is due both to mode shifting away from truck to rail and intermodal, as well as stronger pricing power in many of those modes versus trucking,” according to Gilmore. “Railcar loadings increased a strong 7.3 percent and intermodal volumes were up even more at a 14.2 percent gain in 2010. Combined with strong pricing power, railroad revenues were actually up more than 21 percent for the year.”

CSCMP acknowledges that manufacturing and business spending were the bright spots during much of 2010. Although growth in consumer goods was almost flat in the face of weak retail sales last year, industrial production was up 5.3 percent in 2010 after an 11.2 percent decline in 2009.

“Over the last 12 months, we’ve seen a slow and steady improvement in business globally,” Joe Gallick, senior VP of sales for Penske Logistics, said in a statement. “We’ve also witnessed the resilience and importance of how well-managed, dynamic supply chains help companies drive down costs, manage inventories, respond to recalls, and adjust to sudden economic shifts and global crises.”

Moving forward, these positive signs are tempered by a slow recovery from the recession for the logistics industry.

“A lot of words come to mind when I look at the 2010 data as a whole: choppy, seesaw, mixed signals, volatile,” supply chain and logistics analyst Adrian Gonzalez wrote at Logistics Viewpoints. “And 2011 is turning out to be more of the same, with most indices trending in the ‘right’ direction during the first quarter, only to reverse course and head in the ‘wrong’ direction the past few weeks.”

Resources

22nd Annual State of Logistics Report (membership required)
Council of Supply Chain Management Professionals, June 15, 2011

Logistics Industry’s Slow Economic Comeback Continues in Spite of Challenges
Council of Supply Chain Management Professionals, June 15, 2011

State of the Logistics Union 2011
by Dan Gilmore
Logistics Digest, June 16, 2011

State of Logistics Report: U.S. Logistics Costs Hit $1.2 Trillion in 2010
by James A. Cooke
DC Velocity, June 15, 2011

…Annual State of Logistics Report: A Catalyst for Discussion, Debate and Inquiry
by Adrian Gonzalez
Logistics Viewpoints, June 15, 2011