Total Transportation Logistics

This report concludes that the CASS estimate of logistics costs is generally valid as a measure of business freight logistics costs. The CASS estimate does not include passenger logistics costs associated with business activities. While valid, the CASS methodology could be improved by making four adjustments. First, business related passenger transportation should be included in the CASS estimate. Second, inventory should be measured in constant dollars. Third, inventory levels should be smoothed to account for economic cycles. And finally, interest rates used to estimate inventory capital costs should be held constant.
This report further concludes that the most common comparison between logistics and GDP is misleading. In fact, the most commonly cited estimate of logistics costs is not inherently related to GDP because it is neither a measure of how much of GDP is consumed by logistics nor is it a measure of how much logistics contributes to GDP.
The difficulty in comparing logistics (or any industry) with GDP is in the way "logistics" is classified and calculated. Which elements are included in the estimation of "logistics" can significantly change the meaning of any comparison. In any comparison, GDP is the constant - it always has the same definition. Simply stated, it is the total value of final goods and services produced for consumption within a country's borders in a given time period (usually a year.)
GDP = private consumption + government consumption + investment + net exports
Where: net exports = exports - imports
GDP does not include intermediate goods and services, only final goods and services.
One way to evaluate logistics relative to GDP is to determine how much of GDP is consumed by the logistics activities or the total final demand for logistics by all user categories (consumer, government, business, and net export.) This comparison says nothing of the contribution of the industry to GDP other than to determine the level of final demand that logistics requirements generate. This calculation of logistics must only include purchases that are not consumed by the production of services that ultimately contribute to GDP. This measure of logistics is not currently available. Furthermore, the usefulness of such a measure is not readily apparent.
Another way to evaluate logistics relative to GDP is to determine how much the logistics industry contributes to GDP. To make this comparison one must determine the level of added value generated by the industry. Such a metric would be desirable because it would be a statement of logistics' contribution to GDP. Importantly, intermediate goods are not included in GDP. As a result, this is a difficult comparison to make. One must determine which of the many goods and services purchased by logistics firms are consumed in the production of the goods and services produced by the firms, the difference between the two equals the industry's contribution to GDP. The required calculation is a two-step process. The first is to develop a clear boundary separating logistics activities from other business activities. Within the established boundary (as drawn in this report or as employed in the CASS methodology) the secondary challenge is to estimate value-added from both outsourced logistics activities (i.e., transportation and warehousing industries) and from in-house logistics activities. The transportation element of logistics is measured in this manner by the TSA. However, there is currently no comparable measure of other logistics activities. As such, there is currently no means of calculating the contribution of logistics activities to GDP from a value-added perspective.

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