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Logistics Costs on the Rise as E-Commerce Puts Pressure on Supply Chain

Logistics costs are rising and the upward trend may be ongoing.

U.S. business logistics costs increased 6.2% in 2017 compared to the previous year, to a new annual record of $1.5 trillion, according to a supply chain study produced by management consulting firm A.T. Kearney and presented by Penske Logistics. This represented 7.7% of gross domestic product for 2017.

The costs of shipping goods and services is rising, as evidenced by higher capacity rates, according to the report. This has led to higher supply chain costs and the consolidation of smaller trucking and logistics companies that cannot compete.

“Challenges in this space have resulted in high-level technological innovations that has shaken the industry out of outdated stereotypes,” the Annual State of Logistics Report from the Council of Supply Chain Management Professionals noted. “Rising fuel costs also factor into the equation.”

The price of a gallon of regular unleaded gas, for one, is currently at a nationwide average of $2.88, up 56 cents from a year ago. The average price of a gallon of diesel fuel in the U.S. is at $3.24, up 76 cents in the 12 months.

The continued growth of e-commerce also pushed parcel shipment volume up 7 percent in 2017 to nearly $100 billion, with expectations that it will rise at similar levels for the next few years, according to the Annual State of Logistics Report from the Council of Supply Chain Management Professionals.

The e-commerce surge has a strong effect on the supply chain, in areas of more visibility for corporations and customers, the report noted. The heavy load also creates the need for more warehousing, which in many cases will be smaller and closer to large population centers. It also creates the need to design more responsive and flexible logistics networks, the report noted.

“The demand-supply balance shifted much more dramatically this year when compared to last year,” Sean Monahan, A.T. Kearney partner and co-author of the report, said. “In 2015 it was a dark story if you were a carrier. There was a lot of excess capacity in the marketplace. We saw that starting to turn around in 2016 and continued to accelerate into 2017.”

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The council pointed to an ongoing truck driver shortage in the transportation sector that has myriad effects, including potential for slower package delivery times for consumers. Trucks transport 70 percent of consumer goods in the U.S., according to the report.

In the next 10 years, things like the “uberization” of freight (which includes servicing the last mile or less-than-truckload shipping with third-party transportation), electric vehicle fleets, truck platooning, and drone and unmanned aerial vehicle delivery systems, could have a strong impact on the industry.