Cost of Logistics

MEASURING THE COST OF LOGISTICS

In order to improve any system one needs to be able to manage it, and in order to be capable of managing a system one first needs to capable of measuring it.The Institute's founding Chairman Bob Delaney developed a methodology for measuring the cost of logistics as a percentage of GDP, which he presented annually in his State of Logistics Reports until his death in 2004.

His co-author, Ms. Rosalyn Wilson, has continued his work in publishing these annual reports.Bob's objective with the report was to quantify the logistics-productivity gains resulting from deregulation and to bolster arguments against re-regulation. His logistics-efficiency ratio showed that US logistics costs as a percentage of GDP peaked at more than 16 percent in the early 1980s, before steadily declining to their current level of below 10 percent.

Bob's essay "The Disunited States: A Country in Search of an Efficient Transportation Policy" helped lay the groundwork for logistics policy in the US for years to come. In the essay Delaney begins by noting how, during the period of 1980-4, the impact of deregulation on the trucking industry resulting in savings in excess of $50 billion.

Delaney argued that deregulation would lead to public policy allowing the nation's producers, distributors, and transportation companies to form innovative, cost- effective partnerships that could move goods through the supply chain efficiently.

Logistics Costs

As a result of his campaigning work Bob was asked to assist in writing the legislation that deregulated the interstate motor carrier and railroad industries in 1980. He also played a lead role in the passage of the Aviation Act of 1994, which ended economic regulation of the trucking industry by the states.

Bobs work laid the foundations for a 50% reduction in the cost of logistics in the U.S. since the introduction of deregulation. The question the Institute is now seeking is how this framework can be extended to calculating the cost of logistics internationally, and to ask what impact the addition of seaborne cargo (which accounts for 90% of world trade) has on these calculations. For the purpose of the research and in recognition of China's enormous impact on global logistics costs we have focussed on that market.


BOB DELANEY THOUGHT THE WORLD HOW TO MEASURE THE COST OF LOGISTICS

Robert V. Delaney "Bob" the Institute's founding Chairman, was known as the "Number's Man" as a result of establishing a system for calculating the cost of logistics as a percentage of national GDP in the US.This methodology has been the foundation for the industry-leading report in the US logistics sector 'The Annual State of Logistics Report', which Bob authored assisted by Roslyn Wilson until his untimely death in 2004.

Robert V. Delaney
1936-2004

The report, now authored by Rosalyn, produces a percentage figure once a year on the cost of logistics as well as an overview of the US logistics industry. The report is traditionally delivered every July in the National press club in Washington.

Bob's son Mr Eddie Delaney, traveled to Atlanta to accept the accolade during an industry dinner. Mr Delaney, who died in 2004, is the first person to receive this honor.

In 2006, the Global Institute of Logistics set up a Hall of Fame to honor business figures who have made an exceptional contribution to the logistics industry. It made the institute's own founding chairman, Robert (Bob) V. Delaney, the first member of the Hall of Fame, posthumously. Bob died April 3 2004 at age 68. He had a big hand in developing the 1980 legislation that toppled economic regulation of trucking and railroads.

During a remarkable career that ranged from military service to work in the private sector to advocacy on Capitol Hill, Bob Delaney changed the landscape of the global logistics industry in a profound and lasting way. In the early 1950's, the Army was not only the best place to learn logistics, it was the only place. Exempt from transportation regulation, the military could negotiate with carriers and apply logistics practices that businesses couldn't imagine. When Bob was discharged from the military and entered the private sector, he encountered a different logistics environment--one circumscribed by truck and rail regulation. Shippers could not negotiate rates. They had to design their distribution systems around carriers' operating rights. The public suffered from poor service and high costs.

In response, Bob contributed to writing the legislation that reformed the economic regulation of the U.S. motor carrier and railroad industries in 1980. If there was any one moment that paved the way for the creation and growth of the Intermodal and 3PL industry it was the Motor Carrier Act of 1980. The act limited the Interstate Commerce Commission’s authority over trucking which had previously heavily regulated rates and made it near impossible for newcomers to start companies in the trucking industry. Before the act integrating road, rail and warehousing was impossible, after deregulation, companies that had previously been in warehousing were given more freedom to move into freight management, and increased competition in trucking moved some trucking companies into warehousing as well. Malcolm Mclean may have driven the "container" revolution but it wasn't until 1980 and the passing of the Motor Carrier Act that the full potential of containerization could be realized.

He played a leading role in the passage of the Aviation Act of 1994 which ended the economic regulation of the trucking industry by the states. He was the co-author of two books on transportation strategy and distribution operations. His views and articles on transportation public policy have been widely published by business and transportation press. Bob received the John Drury Sheahan Award for contributions to the field of business logistics from the Council of Logistics Management in 1981 followed by the Harry E. Salzberg Award for his contributions to transportation productivity from Syracuse University in 1988. He received the Joseph C. Scheleen Award for Excellence from the American Society of Transportation and Logistics in 1992.

Bob Delaney wrote in his 2001  'State of Logistics Report' that the development of the industry was all about the nurturing of relationships, predicting that relationships would carry the logistics industry into the future. In the light of this, promoting relationship excellence and collaboration has now become a critical element of the Institute's work.

The Global Institute of Logistics formally inducted Bob Delaney into the 'Hall of Fame' in 2006.

MORE ABOUT BOB DELANEYS INDUCTION

Read On
Beijing probes logistics costs: 18pc of China's GDP - 9pc of OECD's
CHINA is probing the excessive costs of logistics service which total 18 per cent of the GDP against half that in the rich countries of the OECD bloc, reports Economic Information Daily.

The Ministry of Commerce is leading inter-departmental initiative to find out what's wrong and how to fix it, looking at tax reductions and standardisation of facilities to gain cost-cutting efficiencies.

A previous survey of the China Logistics Association revealed that Beijing's "last mile" costs in vegetable delivery from a local wholesale market to retail stores were four times the cost of moving produce from Shandong province. Chili from distant Hainan sold at the farm gate price of CNY13.8 (US$2.26) per kilogramme and marked up to CNY16 per kilo at the Beijing wholesale market, but rocketed up to CNY30 per kilo at the retail level.

Experts point out that the "last mile" transport cost, which means cost of moving cargo in urban areas, has taken up over 30 per cent of the collective logistics cost of the whole industry. China's cost is still higher than other BRICS nations. India is five percentage points lower, while Brazil is seven percentage points lower.

Since 1991, China's average logistics cost growth has been at 14.8 per cent, obviously faster than the GDP growth of 10.7 per cent. Experts explain that China's poor organisation, low professionalism and lack of application of information technologies are the direct causes of the high "last mile" transport cost. Expanding urban areas are increasing transport demand, requiring more trucks. But the lack of public supply-demand information sharing platform has resulted in shortages of available trucks and truckers who cannot find freight to move.

Ministry of Commerce statistics show that Shanghai's empty running trucks took up 37 per cent of the city's entire truck fleet in 2011, which is three times of that in Europe and America. Guangdong is also suffering from too many empty running trucks, which generates a cost of CNY37 billion per year.

Higher costs also come from manufacturers' reluctance to use third-party logistics services, preferring their own trucks. China's third-party logistics service accounts for less than 25 per cent in the market, compared to over 70 per cent in developed countries.

Toll charges and fines have also been marked as a cause of the high logistics costs. Shippers and forwarders claimed that toll charges and fines took up more than one third of their logistics cost.

Kieran Ring, CEO of Global Institute of Logistics, noted that most of China's expressways are toll roads while in the US, only 8.8 per cent are. A survey shows that 70 per cent of the world's toll roads are in China, and the Chinese pay the highest tolls.

The pilot tax reform scheme in major cities, which replaces business tax with value-added tax and has hence induced a 11 per cent value-added tax to the transport and logistics industry, has added up to the heavy burden the industry already bears.

Wang Xuanqing, an official from the Ministry of Commerce, said lowering logistics cost will be the next focus of the government. He disclosed that the Ministry of Commerce is studying policies to facilitate logistics with other government departments like the inspection and quarantine authority and the Ministry of Finance.

He said that the government is also studying standardising logistics facilities and expected to complete standardisation in three years.

For example, many shippers are still using their own pallets instead of standard ones. This slows loading, unloading and shelving and warehouse throughputs, Mr Wang noted.

The Ministry of Commerce is also considering ways to reduce higher tax for the logistics industry caused by the tax pilot scheme of replacing business tax with value-added tax, including offsetting toll fees against tax, and offering concessions to the industry in the use of land, water and electricity.

Promotion of application of information technologies in the logistics industry is also an item on the Ministry of Commerce's agenda.

INSTITUTE LIBRARY

ANNUAL STATE OF LOGISTICS REPORTS

“The Report Produces A Percentage Figure Once A Year On The Cost Of Logistics As Well As An Overview Of The Us Logistics Industry”

EXAMPLES OF REPORTS

2002 Annual State of Logistics Report

2002 Press pack

2001 Annual State of Logistics Report

2001 Press pack

2000 Annual State of Logistics Report

2002 Press pack

MEDIA
U.S. logistics costs: Are we measuring the right things? CSCMP's Supply Chain Quarterly
Comments in response to U.S. logistics costs: Are we measuring the right things?

The China Center for International Economic Exchanges

“The China Center for International Economic Exchanges (CCIEE), founded in 2009, is tasked with promoting international economic research and exchanges and providing consulting services on these issues.”

The China Center for International Economic Exchanges (CCIEE), founded in 2009, is tasked with promoting international economic research and exchanges and providing consulting services on these issues. CCIEE attracts experienced economic researchers and has close connections with economic research resources in various fields.

It operates under the guidance and supervision of the National Development and Reform Commission in terms of its business scope, and is registered in the Ministry of Civil Affairs. The main scope of business and services of the CCIEE is as follows: to study economic issues to conduct economic exchanges domestically and internationally to promote economic cooperation domestically and internationally to provide consulting services.

PRESENTATIONS

“The Following Presentations were published by the Institute During the course of its research in to China Logistics”

China Logistics Background

Logistics Costs in China
Deliver China
GIL Global China Import Logistics Committee
Case Study:Port of Shenzhen and Yantian International Container Terminals

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