After the pandemic plagued supply chains at the start of the decade, the logistics industry has focused the past year on getting back “in sync” by resetting relationships, assumptions, and operations to meet the changing freight landscape, according to an annual logistics report released this week.
The age of building supply chains just around cost-reduction considerations is over as more carriers, shippers, and logistics leaders are focusing on resilience to be prepared for the next inevitable disruption, according to the Council of Supply Chain Management Professionals’ 2023 State of Logistics Report.
The report’s authors are calling this “the great reset,” as all parts of the logistics industry are starting fresh with a new baseline for moving goods across the U.S. “We’re not going to go back to an old normal—I don’t even think there is such a thing as ‘new normal,’” Bart De Muynck, chief industry officer at Project44, said during a news conference before the report’s release.
“We’re continuously going to evolve,” he continued. “Right now is the time to look at what that’s going to look like. And companies have to be a lot more agile to react to those different things: React to weather events. React to capacity shortages or overages, to price reductions, to geopolitical impacts, to things happening in the socio-economic—what we see with labor crisis, whether that’s in the ports, whether it’s in the warehouses, or even companies like UPS and FedEx, who’s struggling with that.”
The report states that logistics leaders are responding by taking a more comprehensive and holistic view of their value chains. This includes diversifying sourcing to avoid overreliance and ensuring ample workarounds in the case of unexpected disruptions. To help plan for the worst, logistics sectors are relying more on technology.
“So much in the way of advancements are around technology,” according to Andy Moses, SVP of sales and solutions at Penske Logistics, which sponsored the report. “Having freight status visibility throughout the supply chain, at the supplier level, through manufacturing, through various stages of transportation—it’s a big deal. I think that will be a major driver of how shippers can be more resilient."
“These challenges are probably with us. These disruptions are probably with us in the future,” Moses added during the news conference. “So that resilience, that ability to respond, having the information to respond quickly, having predictive capability to understand in certain circumstances what you need to react to, I think these are all things that will help drive the most successful supply chains into the future.”
See also: Trucking ‘clearly starting to lose capacity’
The 34th annual publication from the Council of Supply Chain Management Professionals offers a snapshot of the American economy from the logistics sector’s perspective and its role in overall supply chains. It was produced by global consulting firm Kearney and presented by third-party supply chain provider Penske Logistics.
2023 State of Logistics takeaways
Among the notable findings in the annual report:
- The motor carrier sector saw little change in overall volume last year, but capacity increased, resulting in a sharp decline in spot rates. Low rates and high resource costs threatened carrier margins, which hurt small fleets the most.
- U.S. business logistics costs show an increase: Now at a record $2.3 trillion ($1.85 trillion last year), representing 9.1% of national GDP—the highest percentage on record.
- E-commerce sales are still going strong despite consumers continuing to return to stores. In 2022, the U.S. e-commerce market grew 8% to $1.03 trillion ($871 billion last year). It is now 14.5% of the entire U.S. retail market.
- While the U.S. parcel market is at its largest size in history, the percentage of retail sales is beginning to flatten. Revenue increased as major deliverers focused more on profits, as seen in recent rate hikes. But same-day delivery is an “active engine of growth” within the parcel and last-mile sectors.
- Warehousing vacancy rates fell sharply, resulting in higher rents. Robust construction mitigated this rising cost, but companies are hesitant to occupy more space as they seek to shed surplus inventory. The report expects more favorable warehousing conditions later in 2023.
- Third-party logistics providers are investing more capital into technology than shippers (companies that provide goods and services). Respondents indicated that 96% of 3PLs migrated to the cloud (shippers indicated 86% have), while 80% of 3PLs invested in IoT (77% for shippers).
- Freight forwarding market continues to grow due to the sustained growth of international trade and pressures on shippers to reduce costs and improve efficiency. The digital freight forwarding market is expected to see compounded annual growth of 23.1% through 2030.
- The reshoring movement continues: For many businesses, reshoring has gone from a strategic possibility to a market reality. According to the Kearney Reshoring Index, American imports of Mexican manufactured goods have grown by 26% (dating back to spring 2020).
"As the logistics sector moves forward from years of supply chain challenges and bottlenecks, our report shows that now is the time to begin thinking seriously and proactively when it comes to building strategic capacity," said Balika Sonthalia, senior partner at Kearney and co-author of the 2023 State of Logistics Report. "Although the market has swung back in shippers' favor—to the detriment of carriers—we cannot emphasize enough the importance for all industry participants to begin planning for geopolitical tensions, cybersecurity threats, climate change, and related natural disasters, slowing e-commerce growth, and global recessionary factors."
