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Soaring Logistics Costs Threaten Main Street Business Profits, Optimism

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Getting goods from point A to point B has become a real threat to margins.

Particularly for the Main Street small to midsized businesses (SMBs) that are the bedrock of the U.S. economy.

A report released Tuesday (June 21) from the trade group, the Council of Supply Chain Management Professionals, found that supply chain costs soared by 22.4% last year, to $1.9 trillion.

That equates to 8% of U.S. GDP.

As the “2022 State of Logistics Report” noted, those costs include everything from storing goods to financing them.

The Balancing Act 

Now, a 20%-plus jump in any input cost spells trouble for margins, considering the fact that inflation runs at 9% and price hikes — depending on where you look — might edge up into the low double-digit percentage points.

All else being equal, there’s a delicate waltz to dance when companies boost their prices in hopes of preserving margins. Push those prices too high and the consumers strive to find a lower-priced offering or shut their wallets entirely.

And yet, unless you’re one of the deepest of deep-pocketed players, the high costs of logistics seem unavoidable.

As of last month, PYMNTS’ data shows that  64% of Main Street SMB owners expect solid sales growth in 2022. And yet, while 54% of Main Street SMB owners say that inflation puts their sales forecasts at risk, 50% say that economic uncertainty could hurt their performance this year.

Read also: Indexing 19% Above the 2020 Crater, Main Street SMBs Roar Back in Q1 2022

We would add logistics to that economic uncertainty — not just the rising costs but the fact that inventory may not be as readily available as many firms might hope or need.

Of course, there are high-tech upstarts looking to refashion the complexities of the supply chain. In just one example, Freightos Group, which has filed to go public through a SPAC deal, has said in its SEC filing that it works with more than 10,000 importing and exporting companies, 3,500 freight forwarders and 200 carriers — executing in aggregate “hundreds of thousands” of international freight bookings every year.

Read more: Freightos IPO Filings Show Platforms’ Place in Logistics’ Digital Transformation

The company said in the filing that more than two hours are spent managing each shipment, which involves more than 30 people per shipment.

For companies like Amazon, Target and Walmart, the (financial) ability is there to buy up warehousing space, to carve out middle and last-mile operations that can at least somewhat offset the guesswork that comes with supply chain management.

Amazon said in April that it is launching a $1 billion venture fund to support customer fulfillment, logistics and supply chain innovation. The Amazon Industrial Innovation Fund — will invest in companies working to “incrementally increase delivery speed” and improve the experience of employees in the fields of warehousing and logistics. The eCommerce giant has also been snapping up warehouse space across the U.S.

Read Also: Amazon Launches $1B Robotics, Logistics Fund

And last month, Walmart said it is extending its partnership with automation technology company Symbotic to bring the latter’s robotics and artificial intelligence (AI) software to all 42 of the retailer’s regional distribution centers.

The digital makeover of logistics may be in full force — but it will take time and perhaps won’t come soon enough to save Main Street SMBs’ near-term margin outlook.

See also: Walmart Announces Robotic Transformation of Regional Distribution Centers