17th Annual State of Logistics Report. Embracing Security as a Core Business Function

During 2005, the U.S. economy slowed slightly from last year’s pace, while the
growth in its business logistics system was unparalleled. Our business logistics
costs were $1,183 billion and rose from 8.8 to 9.5 percent of our nominal Gross
Domestic Product (GDP). This is an increase of $156 billion over 2004, almost
double last year’s rise and the largest year-to-year change since we started this
model. (Figure 1) This level is also an all-time high for logistics costs. It
represents an increase of 15.2 percent over 2004. The overall economy
continued to expand in 2005 as growth occurred in almost every sector. Freight
volumes climbed higher than the previous record level.
Domestic freight transportation, in terms of tons of freight transported, has grown
over 20 percent in the last decade and is expected to increase another 65 to 70
percent by 2020. Growth in international shipments is predicted to outpace the
expansion in domestic shipments, with some estimates pegged above 85
percent.
Although I predicted that we would continue to see increases in most
components of our business logistics mode, I had not anticipated such a
dramatic rise. I also said that logistics as a percent of GDP would begin to
approach the 10 percent mark again. Despite the rise in 2005, logistics as a
percent of our nominal GDP remained below 10 percent. (Figure 2) Given stillsoaring
fuel costs, continued capacity pressures, record levels of truck driver
shortages and turnover, and the expected costs of meeting security
requirements, logistics costs have continued to rise into the first several quarters
of 2006. With interest rates on the rise, and indications from the Federal
Reserve that they have not peaked, the economy is expected to slow somewhat.
Higher transportation costs and higher inventory carrying costs will combine with moderating growth in the overall economy to produce double digit logistics as a percent of GDP figures in 2006.