CSCMP’s 19th Annual State of Logistics Report

The Council of Supply Chain Management Professionals (CSCMP) has sponsored CSCMP’s Annual “State of Logistics Report®” since 2004, when its 15th annual edition was published. The report has traditionally been released during a press conference held in Washington, DC in June, immediately following the release of the original data. In addition to the actual data, each report includes a particular trend or set of trends identified within the data presented. The report is extremely popular with trade media, Wall Street analysts, corporations, and government agencies for its applicability and level of data aggregation.

CSCMP took over responsibility for the report after Cass Information Systems and ProLogis terminated their support after 14 years. Ever since CSCMP took the report under its wing, it began offering it to its more than 9,000 global members as part of their member benefits.

Robert V. Delaney, the founder and staunchest supporter, passed away after finishing the 15th annual edition of the report, and shortly before the June press conference. His coauthor and associate, Rosalyn Wilson, has undertaken the arduous task of continuing Bob’s vision and work in support of the continuation of CSCMP’s Annual “State of Logistics Report®”. Ms. Wilson is an independent consultant with over 25 years of experience in the transportation field, and enjoys a strong presence among colleagues and industry groups in the Washington, DC area.

Methodology

The basic methodology for the report, with some modification, has been in place since it was first issued. The methodology is used to estimate annual logistics expenditure through historical data. CSCMP’s Annual “State of Logistics Report®” uses three key components to estimate logistics expenditures: inventory carrying costs including warehousing, transportation costs, and administrative costs.

Carrying Costs

The inventory-carrying cost portion of the report focuses on interest, taxes, obsolescence, depreciation and taxes, and warehousing. The first components are based on the generally-accepted method for measuring inventory, the Alford-Bangs formula. This methodology was developed and published in the Production Handbook. The methodology states that the carrying cost charged against inventory can be broken down into the following components:

Insurance
Storage Facilities
Taxes
Transportation
Handling
Depreciation
Interest
Obsolescence
The most significant departure from the original Alford-Bangs formula is the substitution of the prevailing commercial paper rate for the 6% interest rate in the formula. Currently, CSCMP’s Annual “State of Logistics Report®” is using 1-Month AA Financial Commercial Paper Rate published by the Federal Reserve. The actual inventory carrying rate is the commercial paper rate as measured by this series, plus 19% to cover the non-interest expenses for carrying inventory. This is based on the percentages of the above components as a percentage of inventory value developed by Alford and Bangs.
Recap of sources:

Interest rate: 1-Month AA Financial Commercial Paper Rate published by the Federal Reseve
Business Inventories: Private Inventories and Domestic Final Sales of Business by Industry published by the Department of Commerce
Warehousing: warehousing data published by the Department of Commerce, supplemented by various industry reports
Transportation Costs

The transportation costs in the model are based on the methodology used to calculate these numbers in the Transportation in America (TIA) series published by the Eno Transportation Foundation. When CSCMP’s Annual “State of Logistics Report®” was first published, the data was calculated by Frank Smith, the author of TIA, which he was producing independently. Eno took over the publication of TIA in the early 1990s and Rosalyn Wilson took over the publication from Frank Smith.

Here is a basic recap of the sources for each component:

Trucking -There is no single database that covers this industry and the publicly available data for the industry has been limited ever since many companies were released from reporting requirements. To calculate this section M-1 data collected by the Department of Transportation’s Bureau of Transportation Statistics, supplemented with data published and unpublished by Transport Technical Services, and additional data collected by market segment from companies who have been providing data to the author or predecessors for 15 years or so. Annual reports are used as a source for data gaps and periodically the data is benchmarked against Commodity Flow data and the Census of Manufactures.
Railroads – This data is primarily based on data provided by the Association of American Railroads (AAR). For Class I Carriers the data comes from the annual R-1 reports. The AAR collects a separate database from the non-Class I carriers and this data is also included. This data is collected directly from the federal government agencies.
Water – The primary source for the water figures is the Army Corps of Engineers Transportation Data Center. The annual data is generally lagged so preliminary estimates are often based on monthly data. This is supplemented by data from the Department of Commerce for ocean-going freight and data for the Great Lakes collected by the Great Lakes Carriers Association.
Oil Pipelines – This data is based on a report published by the Oil Pipeline Association. This data is often significantly delayed also, so the author relies on conversations with the author of the report and data from the Energy Information Administration of the Department of Energy. Data for production is collected and monitored on a monthly basis to be able to formulate estimates. Pipeline rates are regularly tracked from several industry sources to use with the physical measures.
Air – The air data is based on the monthly and annual data collected by the Bureau of Transportation Statistics (BTS). This includes data published in the Green Book and the Blue Book. Data published by the Airline Transport Association is also used to evaluate trends and to estimate whenever BTS data is not yet available. Annual reports for the major package carriers, as well as data they provide that is not published, are also used in the calculation.
Forwarders – No single database exists for this component, requiring the use of multiple data sources, including the collection of data directly from companies. A basic calculation is made based on the number of workers in this industry segment as collected by the Bureau of Labor Statistics, to ensure the tracking of changes in this segment (growing explosively for the last decade, but slowed considerably the last couple of years). All regularly published data for 3PLs are reviewed, as well as periodic surveys of the market space.
Logistics Administration and Shipper Costs

The logistics administration portion of this is 4% of total logistics costs as measured above. There has been some discussion about whether or not this is still a good figure, but there is no comprehensive study to support changing it. The author has periodically done informal polls of the companies that regularly provide data for any of the sectors above and the value is all over the map.

The shipper costs represent the costs borne by shippers such as preparation of Customs documents, costs related to regulatory compliance, data systems, etc. Periodic discussions are also held with major trade association economists to gauge changes.

The Report’s History

On June 15, 1990 Robert Delaney stood before an assemblage of the industry’s working press and delivered the first report, CLI’s State of Logistics Annual Report Trends in Logistics and our World Competititveness. Bob was vice president of Cass Logistics, Inc. (CLI), and it remained a sponsor of the report until CSCMP assumed that role in 2004. The purpose of the report was:

“to provide the working press with independently audited research and analysis that will enable them to understand the importance of business logistics and its contribution to the economy.”

Mr. Delaney was thoroughly engaged in the debate and the formulation of policy and legislation during the deregulation of the transportation industry in the late 1970s and early 1980s. He developed the model to measure the effects of the reforms and the revolutionary effect they had on industry performance. The first study of his model was published by the Cato Institute in 1987 and immediately sparked a debate about the methodology used.

The Delaney Estimate

The “Delaney Estimate,” as it was called then was soundly criticized in a pamphlet distributed by the Coalition for Sound General Freight Trucking. The author, Dr. Michael Evans, argued that the cost savings were largely due to the fall in interest rates during this period. Subsequently, both arguments were independently reviewed by a logistics expert from the University of Minnesota and a macro-economist from Northeastern University. They concluded that interest did play a role, but that Delaney’s findings are realistic. The results of their review were published in 1988 by the US Department of Transportation’s Economic Analysis Division. The report concluded that “The methodology employed by Delaney in estimating the savings currently being enjoyed as a result of deregulation appears to be generally correct…”

At the time, the methodology generated a lot of debate as did deregulation itself. In the end, the methodology was considered sound and Delaney built the State of Logistics series on the model he had developed.

Methodology

The model for CSCMP’s Annual “State of Logistics Report®” is based on methodology for logistics cost assessment described by Heskett, Ivie, and Glaskowsky, in their 1973 logistics text. Their framework defined logistics total cost as the sum of four types of commercial activities: transportation, inventory, warehousing, and order processing.

Transportation costs were obtained from the Transportation Association of America and the Bureau of Labor Statistics. Inventory cost is based on estimates of the costs of interest, depreciation, obsolescence, taxes and insurance as a percent of the average value of inventory on hand in the US. The sum of these percentages is the “carrying charge” for inventory expressed as a percent of the value of inventory.

Public warehousing cost was initially estimated using the average valuation of $2 per square foot for basic warehouse space plus $0.25 per cubic foot for refrigeration space. Private space owned by retailers, wholesalers and manufacturers was estimated based on inventory value/space occupied ratio for wholesalers.

The order processing cost, although proposed by Heskett, et al, was not used in Delaney’s computations. Rather he included these costs in an overall measure of logistics management called “logistics administrative costs.” Annual logistics cost was estimated as the sum of inventory-carrying costs including warehousing costs, transportation costs, and logistics administrative costs. This basic methodology, with some modification, has been used to estimate annual logistics expenditure since the report was first issued.

For more information about CSCMP’s Annual “State of Logistics Report®”, please contact Jessica D’Amico, CSCMP Research Project Coordinator, at jdamico@cscmp.org or +1 630.645.3460.

© 2008 Council of Supply Chain Management Professionals

This entry was posted in Associations, Education, Emerging Trends, Freight & Transportation, News & Info, Professional Communications, Supply Chain Management. Bookmark the permalink.

Comments are closed.