Note: In billions of USD. Source: Council of Supply Chain Management Professionals, State of Logistics Report, (after 2012). Logistics Management & Distribution Report (before 2012).
The composition of logistics costs is mainly attributed to inventory carrying costs, transportation costs, and administrative costs. The main reason why transportation costs are increasing in relation to inventory costs is that a growing share of the inventory is in circulation. Thus, the ratio of inventory carrying costs/transport costs is a proxy for the velocity of freight. Transportation costs tend to fluctuate with fuel prices and with economic conditions (cyclic behavior of transport capacity). For instance, there was a fast growth in transportation costs between 2005 and 2008 as trade was growing and fuel prices were rising. Thus, a temporary rise in the inventory carrying costs/transport costs ratio is usually indicative of a recessionary cycle as demand drops and inventories accumulate.
The long-term trend indicates more cargo units are in transportation modes (mostly trucks and rail for the United States) in relation to units of cargo held in warehouses and distribution centers. Further, the shift to flow-based logistics implies less time for orders spent in distribution centers and higher inventory turnover. The question remains about the lower limits of the inventory carrying costs/transport costs ratio, which has been steadily declining since the 1980s. A shift may be in the making. The Covid-19 pandemic resulted in an initial drop in the ratio as transportation costs declined substantially in 2020 and 2021, in line with the demand. By 2021, there was a surge in demand and a sharp increase in transportation costs, reversing the trend as the velocity of freight declined, which was observable in 2022 and 2023.