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Recession Doesn’t Spare Brand Owners’ Shipping Costs

By: Simon Kaye, Jaguar Freight Services
Posted: February 2, 2010, from the February 2010 issue of GCI Magazine.

It was a story that made headlines throughout the logistics world. In its annual benchmark State of Logistics Report, the Council of Supply Chain Management Professionals (CSCMP) said that, after rising more than 50% during the previous five years, business logistics costs fell to 9.4% of U.S. gross domestic product (GDP) in 2008. This number was down from 10.1% (2007), as total U.S. logistics costs dropped to $1.3 trillion in 2008, a decrease of $49 billion. The clear inference was that the impact of recession caused the cost drop, as logistics providers supposedly scrambled to cut logistics costs faster than shipping volume declined.

Yet a deeper look at the numbers revealed that the so-called logistics cost decline was little more than a big drop in inventory carrying costs, as interest rates plunged to record lows in the financial crisis. Warehousing costs alone were up 9.5%; air, ocean and rail transport costs—the first two of which have a major impact on globally sourcing beauty suppliers and marketers—were up 4.4%. Even economically sensitive trucking costs were up 1.3%. The lesson is clear: Despite the recession, shippers of price-sensitive beauty products still face rising transport costs in all traditional modes.*

How to Cut Costs

It’s been previously observed in this column that few industries depend more on global sourcing than beauty. The explosion of global trade in the past decade or more—and the expansion of sourcing, transportation and distribution networks that enabled it—has stretched the resources of all but the largest multinational corporations. Demanding service levels and high costs—only partly due to fuel—make supply chain management even more of a top priority when recession strikes. Companies that have made cutbacks in their own organizations to reduce costs may, more than ever, lack adequate logistics infrastructure, capable decision support tools, necessary capital and operating scale as a result of recession.

In a down economy, brand owners should review supply chain logistics from the ground up. Today, a poorly constructed or outdated supply system with inadequate organization can create unnecessary delays and expense at ship terminals and airports, caused by information snags, inadequate packaging and other such lapses. These can result in customs delays, cargo loss, and theft—all of which create huge and unexpected cost penalties.

When it comes to logistics, speed is second only to reliability as a competitive edge, and in the world of global sourcing and shipping, speed is synonymous with planning and preparation. Inadequate preparation, reflecting incomplete information about customs and shipping requirements, is the most preventable (and most costly) problem when it comes to inefficiencies in global sourcing. The industry needs to realize that advance planning, with the help of a knowledgeable freight forwarder who knows what to plan for, can put shipments on the fast track while complying with even the strictest customs and security rules.