1

Costs of Logistics

Revision March 2015

(Update of the 2014 Study, with updates from the new Establish Davis

report (2014 report), of the index LPI 2014 of the World Bank and of the

data of 2012/13 intermediate costs for sectors related to transport from

the last National Report on Transportation – CNT)

Foreword

9,14

7,92

7,51

8,36

7,5

8,8

9,74

9,28

8,488,28

7,777,87

8,4

9,35

7

7,5

8

8,5

9

9,5

10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2

Definitions: Logistics is defined by the “Council of Logistics Management" as:

"The process of planning, implementing and controlling the efficient , effective flow

and storage of raw materials , semi-finished and finished goods and related

information from point of origin to point of consumption in order to meet the needs

of customers."

AILOG (Italian Association of logistics and supply chain management) adopts a more

operational definition, and considers logistics as:

"The set of organizational, managerial and strategic activities that govern in the

company the flow of materials and related information from its origins at suppliers

to the delivery of finished products to customers and after-sales service "

Both definitions emphasize the existence of a wide range of activities beyond the

mere transport, and the need for their implementation on an integrated basis.

It’s clear, however, that transportation, in its various forms, has a key role in all

phases of the logistics process, as documented by the work of two well-known

international companies that make periodic surveys of logistics costs.

The best known is Establish / Davis,

which bases its findings on a vast universe of companies, at an international level and whose data-

base has more than 35 years of life ( started its surveys in 1974 ) .

Updating of the Logistics Costs from the presentation of Establish-Davis to the

Council of Supply Chain Management Professionals (CSCMPS) Annual Global

Conference, San Antonio, 21/23 September 2014.

3

According to the latest research of the Establish-Davis, referring to 2014, the cost of logistics rose

to 9.34% of sales compared to 8,41% in 2013, an increase of 11%, after the increase in the 7% on

2012, mainly due to the higher proportion of transportation costs, inventories and administrative

costs.

Over time, (see the graph shown below), this value was maintained on average over the past

decade

Transportati

on

Warehousin

g

Customer

Service

Administrati

onInventory Total

% change 21 -2,5 10,8 36 5,2 11

-10

0

10

20

30

40% increase of single costs - 2014 vs. 2013

Transportation Warehousing Customer Service Administration Inventory Total

4

to levels of around 8%, with some fluctuations related to the various stages of the global

economic cycle, but it took off again on values of the period pre-crisis from which it had gradually

come down in the following years, until 2012..

Among the

various costs

the most

important is

undoubtedly

transport

that in 2014

has

contributed

to 48% of

logistic bill.

0

1

2

3

4

5

6

7

8

9

10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

4,363,34

2,633,28 3,36

4,43 4,4 4,684,12 4,08 3,79 3,44 3,66

4,43

1,8

2,02

1,6

1,93 1,65

1,52 1,99 1,9

1,73 1,751,76

1,892,04

1,99

2,07

1,72

2,6

2,31,76

1,921,95 1,8

1,83 1,791,73 2,05

2,11

2,22

0,55

0,430,4

0,47

0,48

0,69

1,01 0,62

0,54 0,430,3 0,3

0,37

0,410,36

0,410,28

0,38

0,25

0,24

0,390,28

0,26 0,230,19 0,19

0,22

0,3

Transport Warehousing Inventory Customer service Administration

Transport

48%

Warehousing

21%

Customer

service

4%

Administration

3%

Inventory

24%

% shares on logistic Costs - Source Establish Davis 2014

5

Undoubtedly the

trend in oil prices has

affected the costs of

transport, especially in

the period between

2003 and 2008, and

then from 2010 to last

autumn, as the fuel

consumption account

for 30% of transport

costs, more than labor

costs. The increase in

fuel prices, especially

since the end of 2011

and 2013 and the first half of last year has justified the increase in the incidence of transport in the

last years. It should be emphasized that the inputs for the analysis of 2014 were sent before the

collapse of oil prices last autumn.

Among the most interesting conclusions of Establish presentation should be emphasized:

Labor

costs

26%

Amortization

,

Maintenance

, Pneus

32%

Insurance,

Tolls,

General

expences

12%

Diesel oil

30%

Transport CostsSources Confetra, Iveco

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

0,00

20,00

40,00

60,00

80,00

100,00

120,00

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Logistics costs and cost of fuel

Petrolio Trasporti Poli. (Petrolio) Poli. (Trasporti)

6

• The smaller companies (< U.S. $ 100 million sales) have a percentage of logistics costs on sales

more than triple that of larger ones, and the gap was much enlarged compared to the previous

survey (2013)

% Of logistics costs on sales

Annual sales in millions of dollars (Establish / Davis 2014)

• Companies whose products have a unit value of less than $ 10 have an impact of logistics

costs on sales up to 2.6 times those with products of higher value

% of logistics costs

on sales

Product dollar value (Establish/Davis 2014)

Even AT Kearney arrived in 2011 to a value of about 7.7 %, (very close to the figure for that year

of Establish-Davis) referred however to the EU-15, from the 5.9% that was foreseen for 2008,

according to data compiled by the Society for the Italian Logistics Plan 2006

7

Despite the large efficiency gains of the previous fifteen years in 2006 it represented still about 6%

of the of companies turnover, as EU-15 average, and the trend showed that these levels would be

maintained for the foreseeable future. The deep changes undergone by the European Economy,

with the serious crisis of 2008/9 have instead pushed up costs that today are probably not far from

the ones indicated by Establish-Davis.

Impact of Logistics on the value of the products

However, if you look at the cost of production, according to the estimate made by AT Kearney for

the 2006 General Plan of

Transport, in Europe the sum

of the costs of transport and

logistics accounted for 16%

of industrial production,

while those in Italy costs

were 20, 5 %. * This could

be due in part to the

different commodities

included in the Italian

production, in part by a

lower efficiency of the

logistics cycle of the country

than in the countries of comparison. An inefficient logistics also hampers productivity because it

lengthens the time of delivery and makes it more complex supply transactions and sub-contracting

relations between firms and downstream integration with the supply chain of commercial

distribution.

Europe Italy

Total 100 100

Production 84 79,5

Logistics & transport 16 20,5

0102030405060708090

100

Logistics and trasports - % on Production Value

8

The inefficiency of the

logistics of our country

accounted then for € 40

billion, a real tax on our

economic and

productive system. Most

observers believe that

the gap with the EU

average has not changed

in recent years.

If the incidence of the

cost of logistics and transport on the value of production were then lowered by one percentage

point this would produce a savings of about $ 10 billion a year.

* Prof. Rocco Giordano confirmed these data in an article in the journal “Logistics Systems “of

December 2010 (Year III - n. 4 - December 2010) where he states : " The European average

costs of transport and logistics on the turnover of industry is 16%. In Italy authoritative

sources agreed that the average is 20.5% with a deviation of 4.5 points.

Given that the industrial sales in 2009 was of about 920 billion, the estimate of this difference

amounts to about 40 billion €.

The Research Department of the Bank of Italy , making similar assessments , estimates the

gap between Italy and the European average of 4.6 percentage points (in 2008 we arrive at 40

billion € calculated on a turnover of 1 trillion and 20% of costs).

Compared to the 188 billion calculated as revenues of the transport and logistics sector, the

“own account” bill just absorbs about 2/3, for a value of 122 billion, of which 48 billion of

transport and 74 billion for other logistics costs. The “third account” represents 66 billion of

which $ 50 billion for transport and € 16 billion for other logistics costs!

Logistics Performance Index

The World Bank regularly publishes an index called LPI ( Logistics Performance Index ) which takes

into account a number of indicators covering six areas: customs efficiency , quality of transport

infrastructure and information technology , ability to organize competitive expeditions from the

point of view of price, quality and competence of ' "logistics industry", tracking and tracing of

shipment: frequency with which shipments reach the consignee within the time originally planned

. On the basis of judgments about these factors an index of “logistics competitiveness” is

elaborated ", which allows to assign a rank to each country. The 2014 LPI index places Italy in 20th

Europe Italy

Totale 4600 920

Production 3870 732

Logistics&transport 730 188

0500

100015002000250030003500400045005000

B

i

l

l

i

o

n

€

Logistics & trasports and Production value - AT Kearney 2006 data

EU 15

9

place in the world, after almost all other major European countries. The chart shows position and

values of the most important countries for each of the six sub- profiles identified.

Country LPI Rank

Previous rank

LPI Score

Customs Infrastructure International shipments

Logistics competence

Tracking & tracing

Timeliness

Germania 1 4 4,12 4,10 4,32 3,74 4,12 4,17 4,36

Olanda 2 5 4,05 3,96 4,23 3,64 4,13 4,07 4,34

Belgio 3 7 4,04 3,80 4,10 3,80 4,11 4,11 4,39

U.K. 4 10 4,01 3,94 4,16 3,63 4,03 4,08 4,33

Singapore 5 1 4,00 4,01 4,28 3,70 3,97 3,90 4,25

Svezia 6 13 3,96 3,75 4,09 3,76 3,98 3,97 4,26

Norvegia 7 22 3,96 4,21 4,19 3,42 4,19 3,50 4,36

Lussemburgo 8 15 3,95 3,82 3,91 3,82 3,78 3,68 4,71

U.S.A. 9 9 3,92 3,73 4,18 3,45 3,97 4,14 4,14

Giappone 10 8 3,91 3,78 4,16 3,52 3,93 3,95 4,24

Irlanda 11 25 3,87 3,80 3,84 3,44 3,94 4,13 4,13

Canada 12 14 3,86 3,61 4,05 3,46 3,94 3,97 4,18

Francia 13 12 3,85 3,65 3,98 3,68 3,75 3,89 4,17

Svizzera 14 16 3,84 3,92 4,04 3,58 3,75 3,79 4,06

H.K. Cina 15 2 3,83 3,72 3,97 3,58 3,81 3,87 4,06

Danimarca 17 6 3,78 3,79 3,82 3,65 3,74 3,36 4,39

Spagna 18 20 3,72 3,63 3,77 3,51 3,83 3,54 4,07

Italy 20 24 3,69 3,36 3,78 3,54 3,62 3,84 4,05

Austria 22 11 3,65 3,53 3,64 3,26 3,56 3,93 4,04

Finlandia 24 3 3,62 3,89 3,52 3,52 3,72 3,31 3,80

Portugal 26 28 3,56 3,26 3,37 3,43 3,71 3,71 3,87

Cina 28 26 3,53 3,21 3,67 3,50 3,46 3,50 3,87

Turchia 30 27 3,50 3,23 3,53 3,18 3,64 3,77 3,68

Grecia 44 66 3,20 3,36 3,17 2,97 3,23 3,03 3,50

Fonte: dati World Bank

The next table shows the position of Italy in respect of the principal partners in the world for each

of the six sub- profiles identified: the rank assigned to the profile of Customs appears to be

particularly negative

Germania Olanda Belgio U.K. Svezia Norvegia Francia Giappone USA Italia

LPI Score 1 2 3 4 6 7 13 10 9 20

Customs 2 4 11 5 15 1 18 14 16 29

Infrastructure 1 3 8 6 9 4 13 7 5 19

International shipments 4 11 2 12 3 30 7 19 26 17

Logistic Competence 3 2 4 5 6 1 15 11 7 23

Tracking & tracing 1 6 4 5 7 31 12 9 2 14

Timeliness 4 6 2 7 8 5 13 10 14 22

10

The chart below shows the trends in Italy compared to the top performers (Germany)

Unfortunately Italy, despite having improved compared to the previous survey is only in 20th place

in the ranking of logistics efficiency. The inefficiency of the logistics of our country, as indicated

above, amounts to 40 billion euro, a real tax on our economic and productive system.

Italy – Transport and GDP

11

Even according to the most recent data, published the latest edition of the National Transportation

Account, published at the end of last year with the data updated to 2012 the areas related to transport

maintain an overall weight, direct and indirect, estimated at around 15 % of GDP. It also includes the

activities of storage of goods, material handling and relating control of information flows (in our case we

considered 15 % of the total costs of information and communication - the percentage of total logistics

activities on GDP).

All of these services, which are sometimes directly followed by the producers of goods himself, are

included within the manufacturing and distribution activities in the national accounts classification.

The trend since 2000 shows relatively small deviations, partly because of the global crisis of 2008/9, which

was reflected heavily on the activity of transport. Progressively increasing only the information and

communication services and the cost of accommodation and catering...

.

Vehicles

Constr.

Vehicle Retail

Sales, repairs,

fuels

Transport&sto

rage

Accomodation

&cateringIT&Comm.

Total activities

relating to

transport

2000 37.979 21.423 100.728 43.448 7.327 210.905

2007 49.447 25.063 112.494 47.344 9.600 243.948

2012 33000 20000 103393 44578 9000 209971

0

50.000

100.000

150.000

200.000

250.000

300.000

M

i

l

l

i

o

n

€

Intermediate costs for the sectors related to TransportChained values - reference year 2005

12

Confining to the so-called “traditional logistics”, which includes substantially transportation and storage, it

represents 7.4% of the GDP, in line with the international statistics previously discussed.

These data are indirectly confirmed by the findings of AT Kearney Study for Confetra of 2011, where they

estimated at around 14% of GDP the weight of the logistics, including the “enlarged logistics” and just over

7% the so called “Traditional Logistics” concept (that includes essentially Transport and storage

Emilio di Camillo - Centro Studi Subalpino – march 2015

Vehicles

constr.

Vehicles

Retail sales,

repairs, Fuels

Transport &

storage

Accom.&cat

eringIT&Comm.

Total

activities

connected to

Transport

2000 2,78 1,57 7,36 3,18 0,52 15,41

2007 3,31 1,68 7,54 3,17 0,64 16,34

2012 2,37 1,44 7,43 3,2 0,65 15,09

0

2

4

6

8

10

12

14

16

18

Shares on GDP of activities directly or indirectly connected to Logistics