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15th Annual State of Logistics Report ® Sponsored by the Council of Logistics Management Globalization June 7, 2004 National Press Club n Washington, DC Presenter Rosalyn Wilson 1 Bob Delaney 2 The U.S. Business Logistics System Cost is the Equivalent of 8.5 Percent of Current GDP in 2003 $ Billions Carrying Costs - $ 1.493 Trillion All Business Inventory Interest Taxes, Obsolescence, Depreciation, Insurance Warehousing Subtotal Transportation Costs Motor Carriers: Truck - Intercity Truck - Local 17 205 78 300 315 167 Subtotal 482 Other Carriers: Railroads Water Oil Pipelines Air Forwarders 38 26 9 28 10 (International 21 Domestic 5) (International 8 Domestic 20) Subtotal 111 Shipper Related Costs Logistics Administration 7 36 TOTAL LOGISTICS COST 9363 Figure 1 Logistics Costs as a Percent of GDP 10.4 10.2 10.2 10.1 10.0 10.2 9.5 20 02 20 01 20 00 19 99 19 98 19 97 19 96 19 95 19 94 8.7 8.5 20 03 10.1 4 Figure 2 Real Growth in Global GDP and World Merchandise Exports 12 Percent Change 10 8 Average Export Growth Average GDP Growth 6 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 -2 Year GDP World Merchandise Exports Source: World Trade Organization 5 Figure 3 Council of Logistics Management is the New Sponsor of the State of Logistics Report ® • Earlier this year the Council of Logistics Management agreed to begin sponsorship of the report beginning with this 15th edition. • CLM is also sponsoring the development of a quarterly index measuring the cost of U.S. logistics that will debut later this year at the 2004 CLM Annual Conference in Philadelphia. It will be based on methodology similar to that used to prepare the annual report. 6 Figure 4 Agenda 1. The cost of the U.S. business logistics system in 2003 2. The trends in U.S. business logistics cost between 1982 and 2003 3. The implications of globalization for the logistics industry 4. The expenditures managed by Third Party Logistics Services Providers in 2003 5. Summary, questions and clarifications 7 Figure 5 The U.S. Business Logistics System Cost is the Equivalent of 8.5 Percent of Current GDP in 2003 $ Billions Carrying Costs - $ 1.493 Trillion All Business Inventory 17 Interest 205 Taxes, Obsolescence, Depreciation, Insurance 78 Warehousing Subtotal 300 Transportation Costs Motor Carriers: 315 Truck - Intercity Truck - Local 167 Subtotal 482 Other Carriers: Railroads Water Oil Pipelines Air Forwarders 38 26 9 28 10 (International 21 Domestic 5) (International 8 Domestic 20) Subtotal 111 Shipper Related Costs Logistics Administration 7 36 TOTAL LOGISTICS COST 936 8 Figure 6 Total Business Inventories Are On the Rise Again 1,210,000 Millions of Dollars, end of period 1,200,000 1,190,000 1,180,000 1,170,000 1,160,000 1,150,000 1,140,000 1,130,000 1,120,000 2000 2001 2002 2003 2004 Source: U.S. Department of Commerce, Census Bureau 9 Figure 7 Commercial Paper Rates Continue to Plummet Holding Down Carrying Costs 7 6 Percent 5 4 3 2 1 0 1999 2000 2001 2002 2003 2004 Source: Board of Governors of the Federal Reserve System 10 Figure 8 Index of Logistics Costs as a Percent of GDP 1982 - 2003 110 Transportation Total 70 Inventory 50 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 30 1982 1982= 100 90 11 Figure 9 “The question before us today is how efficient are we and what actions can be taken to improve our world competitiveness?” First Annual State of Logistics Report , 1990 ® 12 Figure 10 The U.S. Business Logistics System Cost in 1989 and 2003 Percent Change $ Billions 2003 1989 Carrying Costs 300 228 31.6% Transportation Costs 593 327 74.6% 7 4 75.0% 36 22 63.6% $936 $581 61.1% Shipper Related Costs Logistics Administration TOTAL LOGISTICS COST 13 Figure 11 3PL/Contract Logistics Market Turnover Growth ($ Billions) $76.9 $71.1 $65.3 $56.6 $45.3 $39.6 $30.8 $34.2 1996 1997 1998 1999 2000 2001 Source: Armstrong & Associates Inc. 2002 2003 14 Figure 12 The 3PL/Contract Logistics Market Grew by 8.2 Percent in 2003 2003 Gross Revenue $ Billion Third Party Service Providers Domestic Transportation Management – Asset Based 1 9.0 Domestic Transportation Management – Non Asset Based 21.4 Value-Added Warehouse/Distribution 19.8 International Transportation Management 23.5 3PL Software 3.0 Total Contract Logistics Market 1 76.9 Primarily dedicated contract carriage Source: Armstrong & Associates Inc.15 Figure 13 “We conclude this Fifth Annual State of Logistics Report by recommending that your planning horizon assume a fast changing timezero world…Our transportation systems are moving products and materials rapidly, economically, world-wide…It will be done even faster because it is all about time.” Fifth Annual State of Logistics Report, 1994 IT IS STILL ALL ABOUT TIME!! 16 Figure 14 Outsourcing Pieces of the Supply Chain Equals Lower Costs for Some Companies Move Production to Lower Cost Geography Outsource Distribution and LogisticsFunctions Close Production Facilitiesto Shed ExcessCapacity Outsource Manufacturing Functions 0 20 40 60 80 Percent Source: Deloitte Touche Tohmatsu 17 Figure 15 World Merchandise Exports and Gross Domestic Product Rebounded in 2003 12 Percent Change 10 8 6 4 2 0 -2 1998 1999 2000 2001 2002 Year GDP Exports Source: World Trade Organization 18 Figure 16 Share of China in Exports and Imports of Major Traders, 2000 and 2002 (Percentage shares imports or exports) Imports Exports U.S. 2000 8.6 2002 11.1 U.S. 2000 2002 2.1 3.2 EU 2000 2002 EU 2000 2002 2.7 3.4 Japan 2000 14.5 2002 18.3 Japan 2000 2002 6.3 9.6 Developing 2000 Asia 2002 7.0 9.8 6.8 8.3 Developing 2000 7.2 Asia 2002 10.0 19 Figure 17 Benefits of Information Sharing • Strengthens vendor-customer relations • Facilitates planning at all levels • Allows all partners in the supply chain to monitor shipment progress • Minimizes bottlenecks created by waiting for proper documents • Enables all parties to participate in process improvements • Eliminates duplicate efforts • Enhances supply chain security 20 Figure 18 “Wal-Mart is a tough customer, but they will share a tremendous amount of information to suppliers as part of their effort to reduce costs to the consumer, increase service levels, i.e. stock in stores, and to shorten the overall supply chain.” Scott Elliff Capital Consulting and Management, Inc. As reported in The Journal of Commerce, January 2004 21 Figure 19 Information Flows are Often Bottlenecks in the Global Supply Chain “A typical cross-border transaction involves filing 35 documents, interfacing with 25 parties and complying with more than 600 laws and 500 trade agreements.” Adrian Gonzalez, ARC Advisory Group As quoted in Traffic World, May 26, 2003 22 Figure 20 Security Requirements Add an Additional Level of Complexity to Information Requirements • Security Assistance Act of 2002 • Customs-Trade Partnership Against Transportation Terrorism • Food and Drug Administration’s Bioterrorism Act of 2002 • 24-Hour Advanced Manifest Rule • Enables all parties to participate in process improvements • Eliminates duplicate efforts • Enhances supply chain security 23 Figure 21 Radio-Frequency Identification Tags (RFIDs) – The Wave of the Future? Benefits • Could supplant the use of bar codes to carry information used in supply chain • Can carry more information than a bar code • RFID readers can read multiple tags, unlike bar code readers Drawbacks • Lack of standardization • High cost of tags and readers 24 Figure 22 Wal-Mart and the Department of Defense Are Requiring the Use of RFIDs by 2005 • Wal-Mart announced that its top 100 suppliers must comply with RFID use by January 2005 • Every pallet and case for Wal-Mart must have a RFID – some suppliers are having trouble complying • Wal-Mart views the move as another step in their management of items at the store level • Department of Defense requirements are somewhat different – the Pentagon wants encrypted tags • To prevent the radio frequency from disclosing locations, would rather use passive tags that are powered by the readers 25 Figure 23 Sales to Inventory Ratio 1.5 1.5 1.4 1.4 1.3 20 04 20 03 20 02 20 01 20 00 1.3 Source: U.S. Department of Commerce, Census Bureau 26 Figure 24 Summary • 2003 Logistics Costs rose to $936 billion, but fell to the equivalent of 8.5 percent of nominal GDP • Inventory to Sales ratio decline to a new low of 1.32 months of supply during 2003 • Globalization is a reality for the logistics industry and will require innovative and individualized supply chain solutions • Third-party logistics providers will continue to capture an increasing share of the market as they offer end-to-end solutions 27 Figure 25 Summary • China is redrawing the world trade landscape as it expands in to new markets • Real-time, reliable, and accurate logistics information must become more free-flowing and be shared with all partners in the supply chain • Security concerns and regulations will continue on the forefront of transportation issues 28 Figure 26 Question & Answer Period 29