The warning came 10 years ago. Presidential candidate H. Ross Perot during one debate said that free trade would create a "giant sucking sound" as U.S. factory workers were uprooted from their employment and their jobs moved to cheaper locations overseas.

The findings in the latest State of Logistics Report from Robert V. Delaney and Rosalyn Wilson—our cover story this month—lends some credence to Perot's fears. The authors found that total logistics costs have fallen over the past year. That's largely because goods held in inventory, particularly durable goods like washing machines and cars, have lost their monetary value.

The culprit is cheaper imports. Delaney and Wilson cite the work of business strategy consultant Roger Urban, who attributes price deflation in durable goods between 1997 and 2000 to Mexican maquiladora imports. During the last two years, he believes, a boom in imports from China has continued to fuel that trend.

According to Urban, China's share of the U.S. import market has risen from just 2 percent in 1988 to 12.3 percent at the close of 2002. With the U.S. economy becoming increasingly dependent on Chinese-made goods, that number is likely to rise. Wal-Mart, for example, reportedly sourced $10 billion of merchandise from China in 2002, and Ford Motor will source $1 billion worth of auto components from China this year.

Although U.S. labor unions have decried the loss of their highly-paid members' jobs to low-wage manufacturers overseas, some free trade supporters have considered the "deindustrialization" of America to be a plus for a knowledge-based economy as a whole. At the very least, it has had an impact on the logistics profession. After all, no matter whether the goods are made in China, India, Mexico, or Sri Lanka, they all must be shipped to the United States, the largest consuming market in the world. Logistics managers are the ones charged with guiding this flow of consumer goods and other products from foreign shores to the homeland.

Free-trade proponents have long argued that open borders will benefit the economy because competition will keep prices down. As the dreaded specter of deflation hovers over the economy, though, one wonders if prices may have fallen too far. Even Federal Reserve Board Chairman Alan Greenspan has indicated that he's concerned about deflation—a word that strikes fear in the minds of many economists, and certainly in the halls of the White House. It's not hard to understand why: The last time the United States confronted significant price deflation was during the Great Depression.

Even if Greenspan comes up with a plan to hold deflation in check, the current business climate will still force logistics managers to sharpen their pencils. If a U.S. manufacturer can't raise prices for its products because its competitors sell foreign-made versions for less, then the only way that company can maintain its profit margin is to reduce its supply chain costs. That's why Urban contends that deflation leads companies to reduce inventories, and Delaney argues that deflation will force companies to reconfigure their production and distribution networks.

If you thought being a logistics manager was tough now, then heed this warning—the job will only get tougher. In the months ahead, chief executives will increasingly look to logistics to offset competitive pricing pressures even as security costs raise prices for transportation services.