Services Deals, Rising Logistics Costs, and Transportation Constraints

This morning, I'd like to welcome back a regular guest columnist to Spend Matters. Brian Sommer is a Senior Fellow at Azul Partners, founder of Tech Ventive, and is author of the blog Services Safari..

The Institute of Supply Management is reporting that GDP growth in the services sector in the U.S. slowing down again. You can read more for yourself by clicking here and reading the 8/14/06, piece, "The Economic Picture". While the sector is still growing, buyers of services may find service providers more willing to negotiate or negotiate a little deeper.

In contrast to services, fuel and logistics costs are continuing to rise. While I'm sure that's no surprise to you, here are some numbers to ponder. World Trade reports that air carriers are assessing surcharges of 60-65 cents per kilo. FedEx add-on fees are up to 3.75% for ground shipments and 13.5% for air. Logistics Management July 2006 article "Costs Under Pressure" reports that logistics costs as a percent of GDP are moving closer to the 10% range again. Rates have been declining since 1995 when they represented 10.5% of GDP. Rates were at a low of approximately 8.5% of GDP in 2003. As a country, we're moving more material and paying more for the privilege.

The growth in container shipping is still impacting the US port and railroad industries. While total carloads in 2005 shipped by rail are up slightly (0.9%), intermodal loading grew almost 7X (6.4%). Already in 2006, volume increases for the first five months of the year are already equal to those of 2005. Although that sounds good, customers of rail shipments aren't necessarily benefiting. Satisfaction rates are down and in some sectors it is really hurting (e.g., chemicals, agriculture and coal). For further reading, see "Numbers Don't Tell the Whole Story" in Logistics Magazine, July 2006.

Supply management executives need to continue to monitor and adjust their spend sources and transportation options as the economy continues to evolve. And it just might be the right time to negotiate additional concessions on the services front.

Brian Sommer authors the blog: Services Safari.

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