Outside the Box
Top 10 for 2012
Few cities in America can surpass Memphis’ ability to handle air, truck, water, and rail shipments efficiently. But a number of broader issues are facing supply chain executives all over the country. With apologies to David Letterman, I have conjured up a Top 10 list of developments with which I believe supply chain managers should be concerned in 2012. Some are positive, some are negative. All are important.
1 The Economy: Although the recession has officially been declared over, it appears that at absolute best, we are in a very slow recovery period. With unemployment fluctuating between 9 and 10 percent, and transportation rates continuing to increase, it is difficult to see any significant recovery on the horizon. Until we do, we must be concerned about the financial health of our supply chain partners — carriers, shippers, and individuals alike. It will be years, if ever, before we are back to “business as usual” in the supply chain as we have known it.
2 The Price of Fuel: According to Department of Energy projections, diesel fuel will average $3.73 per gallon in 2012, slightly less than 2011, but still 25 percent higher than in 2010. While we may see some fluctuations, I believe fuel will continue to be an aggravating and expensive problem for both carriers and shippers. We already have seen how jet fuel costs impact the price of plane tickets and contribute to other unpleasantness such as the recent American Airlines bankruptcy filing.
3 Continuing Deterioration in the Infrastructure: In spite of stimulus spending, we are nowhere near where we should be to accommodate our growing, albeit slow, highway and rail traffic. In his 2010 State of the Union Address, President Barack Obama outlined a strategy to double U.S. exports within the next five years. Under this plan, exports will grow from $1.57 trillion in 2009 to $3.14 trillion in 2015. Without a significant improvement in our infrastructure, combined with our domestic growth, this will be a sure recipe for gridlock in some parts of the country.
4 Ocean Shipping: With the Panama Canal expansion scheduled for completion in 2015, several steamship companies have ordered new, larger Post-Panamax ships. Look for a continuing expansion and retrofitting at several Gulf and East Coast ports in order to accommodate the new ships. It is quite possible we will see port expansion in the Caribbean, where large ships will be unloaded and their loads dispatched on smaller ships to various U.S. ports.
5 Rail Re-regulation: There still is a faction in Congress that would change the way the rail industry is regulated. So-called captive shippers (shippers served by only one railroad) have long complained that the rail carriers are charging exorbitant rates and other transportation options are non-existent. While I sympathize with captive shippers, I believe re-regulation would result in higher prices, reduced productivity, and capacity constraints. It is impossible to predict what the current Congress may do, but let’s hope they don’t try to throw the baby out with the bath water.
6 Rising Truck Rates: Increasing fuel costs and further regulation on engine emissions and carbon footprints, as well as other possible extenuating factors in the motor carrier environment, will result in higher truck rates. Some increases already have been taken, but look for more in 2012.
7 Capacity: If the economy improves dramatically, capacity could well become an issue. Many truckers have sold off equipment during the downturn, and potential driver shortages could impact the number of vehicles on the road. While new truck orders are up, we still could experience an imbalance.
8 Security: We can expect to see continuing efforts to improve security in the supply chain, but the idea of guaranteeing that every package and every container will be safe almost boggles the mind. It will be impossible to plug every leak, but the government and carriers will be trying to do so as they develop.
9 Going Green: The supply chain has finally caught up with the environment. We can see shippers, carriers, and logistics service providers attempting to store, handle, and transport goods in environmentally responsible ways. These will not always be the least expensive methods in terms of capital outlay but will pay off in the long run.
10 Increased Truck Weight: There is a move under way to increase allowable truck weights from 80,000 to 97, 000 pounds for trucks equipped with six axles, rather than the usual five. Truck size would not be affected, but the extra axle would enable the vehicle to handle the additional weight without any negative effects on highway infrastructure, safety, fuel costs, or the environment. In fact, there is strong evidence that just the opposite would be true. The U.S. Senate recently approved the measure for Vermont and Maine, where tests have been under way, but the hope is that each state will be given the option to increase weight limits on its own portion of the interstate highway system. Many responsible firms are advocating this, including Memphis–based International Paper, and hopefully, Congress will see the wisdom in passing the necessary legislation.
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider of logistics management advisory services, and author of Logistics Outsourcing — A Management Guide.
He can be reached at www.cflynch.com.