The economic significance of the Australian logistics industry
The efficiency of Australia’s Logistics industry is vital to the nation’s productivity and wellbeing.
Measures of the economic significance of transport are reported by the Australian Bureau of Statistics but they significantly understate the expenditure on Logistics because they do not record these services when they are undertaken by firms on their own account and they fail to capture logistics activities not directly related to the movement of physical goods.
ACIL Allen has made an estimate of the true size and impact of Logistics in Australia and estimated that
Logistics employs 1.2 million people and added $131.6 billion dollars to Australia’s economy in 2013. This represents 8.6 per cent of the nation’s GDP in 2013.
Every industry in Australia depends on transport and logistics to some degree. Low cost transport and logistics allows Australian exporters to profitably reach key markets, helps Australian manufacturers to keep cost-competitive in the face of cheap imports and enables firms within Australia to compete over a larger area, bringing lower prices and greater choice to consumers. Using Computable General Equilibrium ACIL Allen has estimated that a 1 per cent improvement in the efficiency of this industry generates $2 billion of gains to the economy each year.
There are risks to the efficiency of Logistics in Australia, for example urban congestion, inefficient regulation, an ageing workforce and difficulty in identifying and investing in infrastructure because of financing and planning constraints.
Australia’s system of national accounts measures the economic impact of an industry called Transport, Portal and Warehousing which includes transport, postal services, warehousing and other transport support services offered to customers across all industries in Australia.
By only recording transport services offered to third parties (called ‘Hire and Reward’ services) the national accounts miss a significant amount of freight transport that is carried out by companies on their own account (so called ‘ancillary transport’) and which is allocated in the national accounts to the primary industry of those companies.
Even including ancillary transport leaves an industry definition that is very narrow and misses many of the logistics activities that must be undertaken to bring goods to customers. There are many possible definitions of logistics, but a definition which has been adopted for this analysis is:
Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.
Council of Supply Chain Management Professionals, 2014
Under this definition there are clearly many more tasks to logistics than the transport task. The Transport, Postal and Warehousing industry definition fails to capture these logistics activities except the physical movement and storage of goods.
The logistics industry encompasses the transport industry (including ancillary transport) to define and quantify the Australian Logistics (Logistics) industry and capture the economic activity undertaken by firms across Australia in managing and operating their supply chains. This definition represents the costs of Logistics borne by Australian industries and represents the overall significance of the true Logistics industry.
The Logistics industry affects every industry. Australia is a large country and one which is geographically isolated from many key international markets. The efficient movement of goods and information along the supply chains of Australian companies is central to Australia’s ability to compete in international markets, and to compete with imports to the domestic market. Efficient logistics allow suppliers to compete across a larger distance, enabling greater competition within the country and resulting in benefits to consumers.
‘Productivity’ is what goods and services an economic actor (business, government, state, nation, etc.)
receives for what it ‘puts in’, in terms of labour, capital and other factors of production. Productivity growth is a critical element in delivering an enhanced standard of living, meeting environmental obligations and coping with population growth. In the decade to 2011 Australia’s productivity growth stagnated, averaging below one per cent per annum over the 9 years to 2010/11. This means that over that time period economic growth was mostly generated from increases in population and labour participation, and Australia’s increasing wealth was driven largely by a favourable movement in the nation’s terms of trade. In the past two years productivity has been double the average over the preceding nine years with economic conditions leading to a period or relative restraint in wage claims, however this performance cannot be guaranteed to continue.
Logistics is a critical element in the productivity of the nation. The true Logistics industry is estimated to represent 8.6 per cent of the nation’s Gross Domestic Product, it is a significant cost in Australia’s bulk export trades, and Australia’s significant import of manufactured goods means that efficient supply chains from ports to customers are essential for ensuring that consumers of imported goods are receiving the goods at the lowest possible prices.
There are challenges to the efficiency of the Logistics industry. Fuel prices remain high, regulatory burdens to the industry have increased and state and national regimes overlap, as do the scopes of different regulatory agencies, creating costly duplication and confusion. Urban congestion is slowing the nation’s roads and hindering pick-up and delivery activities for all modes of transport. Urban encroachment is hindering planning approvals and development of necessary infrastructure, including: railways, roads, airports, port expansions and intermodal facilities.
The Australian Logistics Council’s focus is to improve the productivity, efficiency and safety of the freight logistics industry.