US supply chains find resilience comes at a cost
Supply chain spend for US businesses reaches a record high, jumping a quarter year-on-year, as the search for more resilience heats up
US businesses have focused hard on supply chain resilience over the last two years says the Council of Supply Chain Management Professionals’ (CSCMP) 2023 State of Logistics Report, but that has come with soaring costs.
The report found that business logistics costs in the US had risen 20% Year-on-Year (YoY) in real terms in 2022, reaching $2.3 trillion, which is equivalent to 9.1% of national GDP.
This represents the greatest share of GDP ever spent on logistics costs in the 34 annual releases of the report so far.
Compared to the 2020, the rise is even more stark, with costs up 46% from that point until 2022, with inventory carrying costs up 92% and air freight increasing by 66% across the time period.
While this is an increasing burden for businesses and the wider economy, the report authors note that investment has gone into making supply chains more resilient across this time and that demand has cooled in 2023, which will temper further increases in rates charged.
Part of the investment has been into underpinning technology, particularly among third-party logistics (3PL) providers. Ninety-six percent of 3PLs have migrated to the cloud, 86% of shippers have done the same, while a much closer 80% of 3PLs reported investing into IoT, alongside 77% of shippers.
Part of this higher drive for technology investments among 3PLs appears to be that they are increasingly being relied upon to move freight, but with the caveat that they provide high visibility over goods in shipment.
Report authors Kearney noted in their executive summary that: “Increasingly, shippers are calling upon 3PLs for more specific needs, especially data management, visibility, and analytics. But beyond even this, shippers are increasingly open to trusting 3PLs with the stewardship of entire supply chains—as 4PL capability resurges. Freight under management by 4PLs is growing.”
The other main thrust is into reshoring, nearshoring and near-sourcing for supply chains into the US, which the report authors note is on the rise and generating investment into several economies, particularly Mexico.
Turning to this year, the research notes a stagnation in demand for logistics services, which is bringing this record-breaking period of price rises to an end, with retreats from 2022 highs noted thus far.
However, risks remain and the labour market is extremely tight, creating a pillar of upward pricing pressure.
"Although the market has swung back in shippers' favour—to the detriment of carriers—we cannot emphasize enough the importance for all industry participants to begin planning for geopolitical tensions, cybersecurity threats, climate change and related natural disasters, slowing e-commerce growth, and global recessionary factors," said Balika Sonthalia, senior partner at Kearney and co-author of the 2023 State of Logistics Report.