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"This is certainly an interesting time to be in logistics," says Pat Johnson, the manager of logistics at Land O'Lakes, the dairy company based in Arden Hills, MN. "In addition to challenges like rising fuel prices, changes in hours-of-service regulations and driver shortages, there are rail constraints and years of carrier attrition. They are really straining capacity as well as budgets."
That's how the manager of logistics reacted to the findings in the Grocery Manufacturers Association's (GMA) fifth benchmark survey on logistics. The survey of 32 consumer products manufacturing companies was conducted by IBM Business Consulting Services in conjunction with GMA.
The survey found that in the last three years transportation costs have increased 23 percent to an average of $1.69 per mile. Transportation now accounts for 62 percent of all logistics costs. The bottom line is that higher than anticipated fuel prices have contributed greatly to the increasing cost of transportation.
Here are the key points:
- Transportation is driving up production costs in the food, beverage and consumer products industry;
- Changes to HOS regulations for truck drivers have had a domino effect. By limiting the average distance a truck driver can cover in a single day, carriers found it more difficult to retain enough drivers to meet demand and overall shipping capacity dropped; and
- More retailers are relying on manufacturers to address the challenges of moving freight today.
"For GMA member companies, responding to the needs of retail customers and reducing costs are constant goals. However, achieving these goals is more challenging than ever as transportation costs continue to escalate," says Karin Croft, GMA's senior director of industry affairs.
Says Karen Butner, associate partner, IBM Institute for Business Value, Armonk, NY, "Current margin pressures are severe. In an effort to improve customer service and reduce costs, we see many consumer products companies reducing the fixed costs and capital requirements of supply chain operations and moving to a more variable cost structure that can be controlled and managed on demand."
