Logistics Costs, United States, 1980-2021

Logistics Costs, United States, 1980-2021

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 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. 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. The Covid-19 pandemic resulted in an initial drop of the ratio as transportation costs declined substantially in 2020, in line with the demand. By 2021, a surge in the demand and a sharp increase in transportation costs reversing the trend as the velocity of freight declined.