The pressure is rising
By Michael A. Levans, Chief Editor -- Logistics Management, 7/1/2006
I wish I could tell you that when you read James Cooke's terrific analysis of economist Rosalyn Wilson's Annual State of Logistics Report, you'll find nothing but good news: Port and highway infrastructure investment is well under way, more truck drivers are jumping into cabs, and fuel prices and freight rates have stabilized and are projected to plummet over the coming year.
Unfortunately, what awaits you is quite the opposite. Cooke, who has covered this report throughout its 17-year history, reaffirms the existence of every hurdle that's responsible for the most challenging environment logistics professionals have ever confronted. So if you were under pressure to provide top-notch service while keeping costs in line last year … Well, let's just say the pressure is rising.
According to Wilson, here's what a tumultuous, capacity-strapped logistics and transportation market looks like: Overall logistics costs totaled $1.183 trillion in 2005—an increase of $156 billion over 2004, and the largest year-on-year change in the history of the report. And as the economy continued to expand in 2005, freight volumes climbed to record levels. Driven by all the usual suspects—rising fuel costs, tight capacity, and dwindling competition—transportation spending reached $744 billion last year.
Even Wilson was caught off-guard by the magnitude of those changes. "Although I predicted that we would continue to see increases in most components of our business logistics model," she says, "I had not anticipated such a dramatic rise." In other words, that giant sucking sound you've been hearing is not a figment of your imagination; it's the rest of your budget being pulled right out of your hands.
Cooke focuses on two pressure points that will continue to push logistics costs upward: The steady climb in interest rates (and, consequently, inventory-carrying costs), and the seemingly endless rise in transportation rates. There's no comfort in these revelations, yet it's almost reassuring to have the cost drivers deftly explained, to see the numbers in print, and even to get to know the "liquor" that's causing our collective logistics hangover.
Wilson's report also pinpoints the nation's crumbling infrastructure and the need for better supply chain security as long-term challenges that the market must address if we are to keep costs in line. I believe it's imperative that shippers understand the potential impact these issues could have on their day-to-day operations, yet I imagine they must seem overwhelming to anyone who's already struggling to maintain control in today's problem-plagued business environment.
The bottom line is that shippers need to prioritize before they take on the big battles. That's why I'm asking each of you to heed some advice from a column I wrote last year, and to make it your mantra: Control what you can control, and simply start there.
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