Your cost of living - how much is due to shipping and storage?

 

I've long been an observer of logistics - the movement, storage and deployment of goods and services from where they start to where they're needed.  General Omar Bradley noted that "Amateurs study strategy, but professionals study logistics".  Logistics underpin and make possible (or impossible) every other military activity.  The same applies to economies as a whole.

I was taken aback to read this week just how expensive commercial and industrial logistics have become over the past year or two.  The Council of Supply Chain Management Professionals has just published its 2023 State of Logistics report, and it's a doozy.  The Loadstar reports:

Although freight rates retreated in most modes last year, supply chains remained eye-wateringly expensive ... US firms saw their logistics costs surge to almost 10% of national GDP.

The report, produced with findings from consultancy AT Kearney, notes that logistics costs soared 19.6% last year, to $2.3trn – 9.1% of US GDP.

Far and away the biggest factor was inventory and carrying cost, which almost doubled, going up 90.2%, fuelled by a succession of interest rate hikes. Warehousing rents stayed in the stratosphere as slower demand was more or less matched by a deceleration of new facility construction.

On the transport side, the maritime sector (including inland shipping) saw the strongest increase, costs rising 18.4%, followed by rail, up 17.6%. Trucking costs were up 6.2% in the truckload sector and 6.4% in the LTL arena. Parcel costs rose 4.7%.

. . .

They are more upbeat on e-commerce, although growth flattened as consumers returned to stores and allocated more money to services. Volumes declined 2%, but are expected to grow at a compound rate of 5% over the next five years – an outlook particularly bullish for same-day deliveries, where revenues are expected to rise to $7.9bn in 2027, compound annual growth rate of 18.8% over 2022.

There's more at the link.

Those numbers are mind-boggling when you think of the scale.  In so many words, nine cents out of every dollar spent or generated in the United States is being spent on moving and storing goods for sale.  Literally everything you buy adds that cost to the other elements that make up its price.  The slightest inefficiency, or delay, or disruption to a supply network makes the logistics share of your purchase(s) more expensive.

In that light, all those companies offering "free shipping"?  They're not.  They can't possibly afford to absorb a logistics cost that high, across their entire product range.  They've simply folded that cost into their overall pricing calculation.  If you're not paying it as a shipping charge, you're paying it as a higher price per item.  "Free" is worth precisely what you pay for it - nothing.

This may sound obvious, and unnecessary to emphasize, but we can and do lose sight of it in the day-to-day minutiae of existence.  At the time of writing, US GDP stands at $26.53 trillion.  In current dollars, at a 9.1% logistics cost, that means this nation is spending $2.41 trillion every year on moving and storing goods.  That's about the same, or slightly more than, our current annual federal deficit, depending on whose figures you believe.  (Hint:  if a politician provides them, don't believe them unless independently verified.)

Peter