The U.S bases businesses have spent almost $1.64 trillion on warehouse and transportation during 2018 but the demand has decreased in 2019. The data collected in 2018 indicated that the spending on transportation and inventory carrying cost has been the highest in the past year since 2014.
In order to capitalize on the enhancing economy of the U.S, a major portion of the U.S based corporate spending was consumed by rising logistics costs. According to the latest reports, the overall expenditure on inventory and goods transportation with carrying cost and other shipping related expense went on to its highest level during the past year since 2014.
According to the Council of Supply Chain Management professionals the highest level of logistics spending during the year 2018 is now slowing down in 2019 and it is expected to go down in the upcoming months as well. The logistics spending during 2018 by the U.S based business counted for almost 8% of the GDP and has increased drastically at the rate of 11.4% from 2017. According to the experts, the contribution of the logistics industry in the GDP is a clear indication of how effective and robust the logistic system is.
The two major factors which contributed highly towards such a dramatic rise in the logistics industry are increased shipping rates and growth in online sales. But along with this, the government regulations on driver hours of service and labor shortage also affected the logistics industry and this data was provided by the Annual States of Logistic reports which was released on 18th June through the Council of Supply Chain Management Professionals.
According to the experts, the economic growth will slow down in the second half of 2019 and it will surely affect the companies dealing with logistics services as most of these companies have started building inventories but the demand is being expected to be pulled back. This might turn out to be good for shippers but because of this carriers will surely suffer as the volume will also decrease.
The partner at consulting firm A.T Kearney Inc. Michael Zimmerman said that even after the expected economical slow down during the second half of 2019, the logistic cost will keep on increasing but not as unexpectedly as the previous year because of the increasing demand and tight capacity strained supply-chain budgets. On one side, the trucking cost will keep on decreasing at a much slower pace than the past while on the other side, labor as well as warehousing costs will keep on increasing. Experts are expecting a decrease in the road truck shipment by almost 5% during the year 2019.
The shipping demand during 2019 will also be affected heavily by the U.S-China trade tension as previously in 2018, we saw that the manufacturers and retailers pull shipment forward in late 2018 by expecting rising levies on Chinese import. This became a headline as many news reports mentioned this incident as ‘Import wave jams California Warehouse’. During this period, most of the U.S based businesses tried to pulled shipment forward by anticipating increased traffic and holidays in China because of the Lunar year celebration during which major factories in the whole country are shut down for multiple weeks. Most of the people working closely in the logistics industry said that they have never seen such a thing in more than 30 years.
And after that, the imports moved up when the U.S officials announced that there will be an increase in the tariffs on $200 billion Chinese imports by almost 25% on 1st of Jan. This increased the import volume at Los Angeles and Long Beach by 9% during the last three months of 2018.
The cost of holding inventories can also turn out to be a money-guzzler for most of the businesses as the price of holding so much of inventory can go to millions of dollars. If these companies anticipation goes wrong or is affected by any other factor then they will have no choice other than slashing down the price in order to get rid of it.
According to the Commerce Department, inventories may be moving ahead of demand as the inventory to sales ratio for U.S based businesses was recorded to be 1.39 during the spring season. The same inventory to sales ratio fell down to 1.34 during May 2018 which is the lowest during the past three years.
You should know that the first State of Logistics Report was made by the famous economist Robert Delaney for Cass Information System during 1988 but after his death during 2004, the job of Logistics Reports was transferred to the collaborator of Delaney, Rosalyn Wilson. In the past, the decreasing growth and increasing capacity have pushed shippers to go for low rates which results in suppliers reducing cost and investment. This is also known as boom-bust cycle among businessman.
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