The Presidential election is looming, and even though the topic of infrastructure occasionally gets a brief mention, specifics are usually absent. Here are the three top challenges facing the logistics industry that the next president needs to understand in order to keep America competitive.
Supply disruptions: The cost of oil, raw materials and many household items continues to climb. Unstable economies and political situations around the world affect us, such as the jump in oil prices we saw after a refinery explosion in Venezuela or when Hurricane Isaac shut down rigs in the Gulf of Mexico.
In order to stay competitive, America’s supply chain must respond to global supply disruptions and be able to switch materials or suppliers quickly when natural disasters or economic turmoil hits a region. The next President needs to understand the speed and force with which events in other countries can affect more than just oil prices – they can seriously affect the cost and transport of goods across our entire economy.
Transportation capacity: Although U.S. manufacturing and retail industries have increasingly relied on imports, our highway and rail infrastructure has been neither maintained nor expanded in critical places. Other factors, such as increased fuel prices, security requirements, border delays and a shortage of truck drivers are eroding the freight transport system’s performance. These slow-downs and delays lead to higher prices for the industry and ultimately for consumers.
What’s more, our inefficient infrastructure will continue to be a hurdle as our economy recovers from the slow-down: Because of the recession, many transportation companies have cut back on labor, trucks and services in response to fewer products being produced, moved and stored. But as the economy picks up, demand will eventually saturate current capacity. In other words, there’s going to be a gap of time between the increase in consumer buying and when the supply chain industry can fully ramp up to meet those needs.
Although the logistics industry can’t build its own rail, roads or bridges, we can ensure that we have the right technology in place to provide the most accurate picture of the current situation and future predictions for forecasting. Furthermore, we need to take a serious look at using a more diverse mix of transportation options to stay competitive in price and delivery, such as relocating distribution centers closer to rail corridors or ports.
Shortened distances and faster response times will mean faster responses to the market. The next President must understand the need for a diverse, reliable infrastructure base and for fostering innovation to help our industry continue to serve the most important economy in the world.
Product safety and security: Food safety is one of the biggest issues affecting the U.S. agricultural and food industries. For those of us in the logistics business, we must be able to execute a recall as quickly and accurately as possible as well as comply with stricter industry regulations. Food and beverage manufacturers have traditionally relied on manual data collection methods to provide information on product and ingredient tracking, with reports based on paper records. Automated systems, however, are providing manufacturers with access to much more reliable, real-time information. Such technology enables manufacturers not only to meet regulatory demands but also to respond more effectively in product recall situations—tracking products faster, more accurately, more efficiently, and more cost effectively. A robust warehouse management system can help a company achieve this level of detail, including quickly identifying batch numbers and location without having to run multiple reports.
Of course this doesn’t just mean pulling items off the shelves, but having a thorough understanding of our suppliers: If one supplier is taken offline, are there others in the region we can turn to as a back-up source? How quickly are their materials available? Did they originate from the same place that triggered the recall? If the recall is food-related, is this new source run through a different warehouse? What are the ingredients that go into this product and are there other products at risk?
The next President must understand the complexities of responding to a recall and help support the logistics industry as it manages those risks. Again, technological innovation and a strong transportation system will help our industry ensure that the products we are moving are safe and that the American people can have confidence in their food and infrastructure systems.
Moving forward
In January of this year, the White House released its National Strategy for Global Supply Chain Security. This is a good start, and hopefully our industry can continue to partner with the White House administration to improve infrastructure, transportation options and the logistics of food safety. As the economy and consumer demand strengthens, so too does the importance of America’s responsiveness and ability to be nimble in the face of an uncertain economic climate.
Chuck Fuerst is the director of product strategy at HighJump Software. He has more than 12 years of experience in the technology market, working for supply chain and ERP software companies to deliver innovative solutions. Chuck is responsible for monitoring supply chain industry and technology trends and identifying ways to enhance the value of products for HighJump’s customers. He holds a Bachelor degree in Marketing Management and Innovation from Concordia University.
I agree with your statements. This dovetails into our Nation’s Critical Infrastructure Protection (CIP). For those interested they can learn more about supply chain and transportation disruption by visiting the following link: http://www.dhs.gov/transportation-systems-sector. CIP was a hot topic back around 2003 through 2009 and also included topics in Food and Agriculture. Where it stands today I am not sure. However the items you discussed are about contingencies and the premise of CIP is about that. I am glad that this topic made it to the Logistics Viewpoints.
I would like to add one note about maintaining our highway systems: “…our highway and rail infrastructure has been neither maintained nor expanded in critical places.” Some are maintained and very well at that. In fact there is less congestion on them, and they are cleaner and more appealing to the eye. But the highways that I am talking about are toll roads. Typically you pay for less congestion and smoother roads. And depending on the time value of money, one may elect to take the toll roads. I know that UPS does in various major cities.
I also agree with your statement but would add:
1. Supply Disruptions – For supply chain flexibility, critical “hard” assets have to be in place; i.e., vessels / ocean services, port / terminal facilities, road / rail infrastructure, etc. Focusing on vessel / ocean services, those service providers have to the foresight and ability to shift their assets to match the speed in changes in the supply chain.
One issue that impacts liner carriers as well as shippers, is the need to file rates in contracts with the FMC and that the rate has to be filed at the time the carrier takes receipt of the shipment at the B/L origin. If the shipper is not available to sign a contract or amendment, either the filing takes place after the carrier has received the shipment or, the rate, which had been negotiated and agreed upon in private between the shipper and carrier, will need to be filed in the carrier’s “public” tariff. The issue is similar if a shipment, in transit has a change in destination . . . If there is no rate in the contract, then the carrier has to ingauge in a bueracratic process with the FMC. In short, FMC filing requirements need to move into the 21st century and move at the speed of business.
A second issue is developing a financial environment conducive for the return of major U.S. ownership in liner industry. In terms of both exports and imports, they will continue in importance to the U.S. economy and GDP growth. However, today over 95% of U.S. trade moving via sea transport is on vessels owned by non-U.S. companies. I am not talking about the vessel flag, but the corporation owning / chartering those vessels. At one time U.S. companies dominated the liner industry. The poor return on investment lined to the flight of U.S. investment in the liner industry. Conditions have to develop that will entice U.S. investment in the liner industry.
Transportation Capacity – Though rail and TL / LTL trucking have their challenges, in my view, the potential weak link is container drayage. In addition to the driver retention issues the entire trucking industry faces, financial return is the serious issue facing the container drayage industry. This is an industry dominated by local / small businesses, relying on owner operators, smaller businesses. Yes, drayage companies do receive a fuel surcharge, however, the issue is having the financial resources to continue to reinvest in their business. The source of these dollars is from the base rates they assess. Rates in general have remained stable if not declined over the past three to five years. If drayage companies and owner operators cannot be profitable and earn a sufficient rate of return to justify the significant investment they make in equipment, then those the required investment and ability to attract capital and people to the industry will diminish moving forward. Drayage rates have to increase and those increases cannot just be borne by liner carriers, shippers have to assume their fair share.
Government Spending – I support the need for the government; Federal, State and Local; to balance their spending. However, regarding transportation related spending, there needs to be a close review of not only their short term benefit; i.e., jobs directly and in-directly related to the project; but more importantly, the long term benefits to U.S. trade objectives, specifically related to exports, and the overall economy. As the saying goes, “you have to spend money to make money”. For companies that is improved efficiencies leading to improved margins and profits which for the government translates into increased tax revenue. Thus the cycle of improving financial performance by companies leading to increased tax revenue spent on transportation infrastructure projects leading to improved efficiency for companies leading to improved profit leading to increased tax revenue leading to government funds for increased spending on transportation infrastructure and so on.