Inventory Carrying Costs (Down 14.1%)
All business inventory = $1.851 trillion
Interest.......................................................5
Taxes, obsolescence, depreciation, insurance.........233
Warehousing...............................................119
Subtotal........................357
Transportation Costs (Down 20.2%)
Motor carriers
Truck intercity.............................................368
Truck local.................................................174
Motor carrier subtotal.................542
Other transportation modes
Railroads...................................................50
Water.......................................................29
Oil pipelines...............................................10
Air..........................................................29
Forwarders................................................28
Subtotal......................146
Shipper-Related Costs.......................................9
Logistics Administration...................................42
Total Logistics Costs............1,095 (Down 18.2%)
A lower cost in 2009 is not a result of effective cost containment measures (as usually is the case). Instead, it is due to the decline in the amount of goods produced in or imported into the United States. To a certain since some of the overseas suppliers did not deliver orders that were placed before the recession until well into the economic downturn, inventory levels first rose steadily and then decreased in the latter part of 2009. Along with a decrease in inventory levels, the interest rate for holding inventories also declined (the annualized rate of commercial paper, i.e. short-term notes issued by corporations and banks, stayed low at mere 0.26 percent for 2009). Inventory carrying costs (i.e. warehousing expenses) declined since my midyear inventories were either liquidated or consolidated. This resulted in higher vacancy rates in warehouses and the rates declined. The key reason for the sharp decline in costs associated with on-the-road transportation (i.e. trucking) was due to the decline in the for-hire truck tonnage from 113.3 in 2008 to 103.5 in 2009. The fewer loads led to a price war, which resulted in lower costs. The drop in freight rates were incidentally occurring at the same time when the trucking capacity was shrinking at a dramatic pace (About 2000 motor carriers closed their doors in 2009). Similar issues associated with cost reductions were observed in the case of other transportation modes. Last year, railroads originated just 13.8 million carloads as compared to 16.4 million carloads in 2008. Ocean carriers suffered huge losses since in some case the spot rates were lower than their operating costs. Carriers mothballed almost one-fourth of their fleets, yet, since new larger ships were being introduced at the same the overall capacity did not reduce. Many ocean carriers curtailed the sailing time and engaged in "slow steaming" (cutting speed to save fuel). The results was somewhat lower costs but longer delivery times and less predictability. Incidentally, air transportation saw an increase in rates due to the decreased capacity (many airlines took aircrafts out of service).
Source: 21st Annual "State of Logistics Report," 2010, Council of Supply Chain Management Professionals.