The past few years saw high demand and tight capacity, putting carriers in the proverbial driver’s seat. But as demand leveled off and inventory rose, the market has swung back in favor of shippers. After being burned by sky-high rates and some carriers failing to live up to prior agreements, many shippers are rethinking the annual bidding process and are looking at other options to lock down transportation capacity, according to the report. These include shorter deals, greater use of the spot market, and mini-bids.
“We believe that the second half of 2022, and what we are seeing in 2023 so far, has been all about getting back in sync with the fundamental change in the equation between shippers and carriers,” said report lead author Balika Sonthalia, partner at the consulting company Kearney. “And in addition to that, we are also seeing that supply chain executives are being more thoughtful and seizing the moment to address structural costs and strengthen the foundation.”
Every year, the State of Logistics Report seeks to detail all costs associated with moving freight through the U.S. supply chain. This year’s report—which was prepared by Kearney for the industry association CSCMP—studies the calendar year 2022 and the first few months of 2023. It also provides an analysis of the state of the economy and looks ahead at key logistics trends to watch. The report is sponsored by Penske Logistics.
In spite of a softening in the overall logistics and transportation market over the past year, U.S. business logistics costs continued to rise, due in a large part to the effects of inflation and a hot labor market. In 2022, U.S. business logistics costs (USBLC) reached $2.3 trillion, a 19.6% rise over 2021. As a result, logistics costs represented 9.1% of U.S. gross domestic product in 2022. (See Exhibit 1.) Sonthalia, however, expects to see these numbers drop in succeeding years.
[EXHIBIT 1] U.S. business logistics costs as a percent of nominal GDP
“I believe with all the corrections that are taking place between all the transportation categories, we expect to see a significant return to the levels we are used to seeing of USBLC as a percentage of GDP,” said Sonthalia. “However, with the lingering shadow of inflation, we see prices remain elevated in certain categories and on certain routes. A lot will depend on the monetary policy, even with the [recent] pause in the interest rate hikes.”
The report stresses that to succeed going forward, shippers and carriers will need to reset their relationships to be less transactional or adversarial and more strategic and collaborative. “If the past years have taught us anything, it is that uncertainty is now a near constant in the global economy, and the smartest way to respond in good times is to gather resources for when conditions suddenly shift again,” says the report.
Logistics trends that shippers and carriers will have to work together to address include increasingly complex order fulfillment requirements due e-commerce growth, reshoring, geopolitical upheaval, and climate change, according to the report.
Analysis by mode
The report takes a close look at each of the main logistics sectors and transportation modes, including the following:
Air: Rates for air cargo dropped 33% from January to December 2022, as demand fell, customers increased their use of ocean freight, and capacity increased as passenger travel returned to pre-pandemic levels. Worldwide air cargo revenue is expected to be $150 billion for 2023, a 25% drop from 2022.
Parcel and last mile: As e-commerce growth eased, parcel volumes dropped by 2% in 2022. Revenue, however, rose as the major companies increased rates. The U.S. parcel market grew 4.7% year over year to $217 billion in 2022.
Water/ports: The major ocean freight companies saw combined operating profits of $215 billion in 2022 due to the strength of the early months of the year. But in the back half of 2022 and into 2023, demand fell, and ships and containers became more available. As a result, 2023 profits are projected to drop by 80% year over year.
Motor freight: Demand for over-the-road transportation stayed basically the same in 2022, while capacity increased. This shift has driven down rates significantly. Spot market rates for dry van, for example, fell 23% from the early months of 2022 to the early months of 2023.
Rail: Rate increases helped Class I railroads see operating income increase by 8% and total revenue by 14% from 2021 to 2022. The rail sector, however, suffered from severe service-related issues in 2022, including congestion, slow network speeds, and increased terminal dwell time.
Warehousing: In 2022, historically low warehouse vacancy rates of 2.9% pushed rents higher and encouraged robust construction of new facilities. But instead of moving into these new facilities, many companies are focusing on trimming inventory and better using existing space. As a result, pricing and availability is expected to be more favorable to shippers in 2023.
In spite of the rebalancing occurring the market, Sonthalia stressed that this phenomenon should not be interpreted as a return to normal.
“We call it the ‘great reset’ for a reason,” she said. “We did not call it ‘return to normal.’ There will not be a ‘new normal.’ The way to think about the reset is simply bringing back the balance. [In 2021] everything was imbalanced more in the favor of one player and there was another player that was losing. We saw over the course of last year and going into this year, the playing field is a bit more leveled. That is another way to think about the reset which gives everyone—shippers, carriers, alike—an opportunity to think through how to become better moving forward.”
Companies in every sector are converting assets from fossil fuel to electric power in their push to reach net-zero energy targets and to reduce costs along the way, but to truly accelerate those efforts, they also need to improve electric energy efficiency, according to a study from technology consulting firm ABI Research.
In fact, boosting that efficiency could contribute fully 25% of the emissions reductions needed to reach net zero. And the pursuit of that goal will drive aggregated global investments in energy efficiency technologies to grow from $106 Billion in 2024 to $153 Billion in 2030, ABI said today in a report titled “The Role of Energy Efficiency in Reaching Net Zero Targets for Enterprises and Industries.”
ABI’s report divided the range of energy-efficiency-enhancing technologies and equipment into three industrial categories:
Commercial Buildings – Network Lighting Control (NLC) and occupancy sensing for automated lighting and heating; Artificial Intelligence (AI)-based energy management; heat-pumps and energy-efficient HVAC equipment; insulation technologies
Manufacturing Plants – Energy digital twins, factory automation, manufacturing process design and optimization software (PLM, MES, simulation); Electric Arc Furnaces (EAFs); energy efficient electric motors (compressors, fans, pumps)
“Both the International Energy Agency (IEA) and the United Nations Climate Change Conference (COP) continue to insist on the importance of energy efficiency,” Dominique Bonte, VP of End Markets and Verticals at ABI Research, said in a release. “At COP 29 in Dubai, it was agreed to commit to collectively double the global average annual rate of energy efficiency improvements from around 2% to over 4% every year until 2030, following recommendations from the IEA. This complements the EU’s Energy Efficiency First (EE1) Framework and the U.S. 2022 Inflation Reduction Act in which US$86 billion was earmarked for energy efficiency actions.”
Economic activity in the logistics industry expanded in November, continuing a steady growth pattern that began earlier this year and signaling a return to seasonality after several years of fluctuating conditions, according to the latest Logistics Managers’ Index report (LMI), released today.
The November LMI registered 58.4, down slightly from October’s reading of 58.9, which was the highest level in two years. The LMI is a monthly gauge of business conditions across warehousing and logistics markets; a reading above 50 indicates growth and a reading below 50 indicates contraction.
“The overall index has been very consistent in the past three months, with readings of 58.6, 58.9, and 58.4,” LMI analyst Zac Rogers, associate professor of supply chain management at Colorado State University, wrote in the November LMI report. “This plateau is slightly higher than a similar plateau of consistency earlier in the year when May to August saw four readings between 55.3 and 56.4. Seasonally speaking, it is consistent that this later year run of readings would be the highest all year.”
Separately, Rogers said the end-of-year growth reflects the return to a healthy holiday peak, which started when inventory levels expanded in late summer and early fall as retailers began stocking up to meet consumer demand. Pandemic-driven shifts in consumer buying behavior, inflation, and economic uncertainty contributed to volatile peak season conditions over the past four years, with the LMI swinging from record-high growth in late 2020 and 2021 to slower growth in 2022 and contraction in 2023.
“The LMI contracted at this time a year ago, so basically [there was] no peak season,” Rogers said, citing inflation as a drag on demand. “To have a normal November … [really] for the first time in five years, justifies what we’ve seen all these companies doing—building up inventory in a sustainable, seasonal way.
“Based on what we’re seeing, a lot of supply chains called it right and were ready for healthy holiday season, so far.”
The LMI has remained in the mid to high 50s range since January—with the exception of April, when the index dipped to 52.9—signaling strong and consistent demand for warehousing and transportation services.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
"After several years of mitigating inflation, disruption, supply shocks, conflicts, and uncertainty, we are currently in a relative period of calm," John Paitek, vice president, GEP, said in a release. "But it is very much the calm before the coming storm. This report provides procurement and supply chain leaders with a prescriptive guide to weathering the gale force headwinds of protectionism, tariffs, trade wars, regulatory pressures, uncertainty, and the AI revolution that we will face in 2025."
A report from the company released today offers predictions and strategies for the upcoming year, organized into six major predictions in GEP’s “Outlook 2025: Procurement & Supply Chain.”
Advanced AI agents will play a key role in demand forecasting, risk monitoring, and supply chain optimization, shifting procurement's mandate from tactical to strategic. Companies should invest in the technology now to to streamline processes and enhance decision-making.
Expanded value metrics will drive decisions, as success will be measured by resilience, sustainability, and compliance… not just cost efficiency. Companies should communicate value beyond cost savings to stakeholders, and develop new KPIs.
Increasing regulatory demands will necessitate heightened supply chain transparency and accountability. So companies should strengthen supplier audits, adopt ESG tracking tools, and integrate compliance into strategic procurement decisions.
Widening tariffs and trade restrictions will force companies to reassess total cost of ownership (TCO) metrics to include geopolitical and environmental risks, as nearshoring and friendshoring attempt to balance resilience with cost.
Rising energy costs and regulatory demands will accelerate the shift to sustainable operations, pushing companies to invest in renewable energy and redesign supply chains to align with ESG commitments.
New tariffs could drive prices higher, just as inflation has come under control and interest rates are returning to near-zero levels. That means companies must continue to secure cost savings as their primary responsibility.
Specifically, 48% of respondents identified rising tariffs and trade barriers as their top concern, followed by supply chain disruptions at 45% and geopolitical instability at 41%. Moreover, tariffs and trade barriers ranked as the priority issue regardless of company size, as respondents at companies with less than 250 employees, 251-500, 501-1,000, 1,001-50,000 and 50,000+ employees all cited it as the most significant issue they are currently facing.
“Evolving tariffs and trade policies are one of a number of complex issues requiring organizations to build more resilience into their supply chains through compliance, technology and strategic planning,” Jackson Wood, Director, Industry Strategy at Descartes, said in a release. “With the potential for the incoming U.S. administration to impose new and additional tariffs on a wide variety of goods and countries of origin, U.S. importers may need to significantly re-engineer their sourcing strategies to mitigate potentially higher costs.”
Freight transportation providers and maritime port operators are bracing for rough business impacts if the incoming Trump Administration follows through on its pledge to impose a 25% tariff on Mexico and Canada and an additional 10% tariff on China, analysts say.
Industry contacts say they fear that such heavy fees could prompt importers to “pull forward” a massive surge of goods before the new administration is seated on January 20, and then quickly cut back again once the hefty new fees are instituted, according to a report from TD Cowen.
As a measure of the potential economic impact of that uncertain scenario, transport company stocks were mostly trading down yesterday following Donald Trump’s social media post on Monday night announcing the proposed new policy, TD Cowen said in a note to investors.
But an alternative impact of the tariff jump could be that it doesn’t happen at all, but is merely a threat intended to force other nations to the table to strike new deals on trade, immigration, or drug smuggling. “Trump is perfectly comfortable being a policy paradox and pushing competing policies (and people); this ‘chaos premium’ only increases his leverage in negotiations,” the firm said.
However, if that truly is the new administration’s strategy, it could backfire by sparking a tit-for-tat trade war that includes retaliatory tariffs by other countries on U.S. exports, other analysts said. “The additional tariffs on China that the incoming US administration plans to impose will add to restrictions on China-made products, driving up their prices and fueling an already-under-way surge in efforts to beat the tariffs by importing products before the inauguration,” Andrei Quinn-Barabanov, Senior Director – Supplier Risk Management solutions at Moody’s, said in a statement. “The Mexico and Canada tariffs may be an invitation to negotiations with the U.S. on immigration and other issues. If implemented, they would also be challenging to maintain, because the two nations can threaten the U.S. with significant retaliation and because of a likely pressure from the American business community that would be greatly affected by the costs and supply chain obstacles resulting from the tariffs.”
New tariffs could also damage sensitive supply chains by triggering unintended consequences, according to a report by Matt Lekstutis, Director at Efficio, a global procurement and supply chain procurement consultancy. “While ultimate tariff policy will likely be implemented to achieve specific US re-industrialization and other political objectives, the responses of various nations, companies and trading partners is not easily predicted and companies that even have little or no exposure to Mexico, China or Canada could be impacted. New tariffs may disrupt supply chains dependent on just in time deliveries as they adjust to new trade flows. This could affect all industries dependent on distribution and logistics providers and result in supply shortages,” Lekstutis said.