Operating in the new reality

By Michael A. Levans, Chief Editor -- Logistics Management, 5/1/2005

As I listened to the presentations at the National Industrial Transportation League (NITL) Spring Forum last month, I couldn't get the image of our January 2005 cover out of my mind. You remember the one: a swirling vortex sucking $100 bills into a seemingly bottomless pit.

Based on what I heard at the conference, the January cover perfectly reflects the environment shippers will be facing for the foreseeable future. As a matter of fact, I'm going to suggest you clip that cover and hang it in your office as a reminder of what is, simply put, the new reality. (You may even want to send a copy to your CFO.) Soaring fuel costs, driver shortages, capacity constraints, highway and port congestion, crumbling infrastructure, a slowdown in rail velocity… these and other factors will increase the force of a vortex that's already poised to take your budget down with it.

Some statistics I heard at the forum made that cover image even more vivid. According to the American Trucking Associations (ATA), the U.S. trucking industry spent $10 billion more on fuel in 2004 than it did in 2003. Shocking? Just wait: In the first quarter of 2005, the industry is on pace to spend $16 billion more than it did just last year.

But it's the driver shortage that's giving the truckload carriers—and capacity-starved shippers—the sharpest migraines. In the fourth quarter of 2004, the ATA reported, the driver turnover rate for large TL carriers reached 136 percent.

And there's more. If you thought last year's West Coast port delays were debilitating, you won't want to hear that 2005 could be worse. Port and intermodal infrastructure will continue to get hammered as trans-Pacific trade increases by an estimated 10 to 12 percent this year.

Ocean carriers are encouraging shippers to use alternative gateways. The East Coast, all-water option has been a popular short-term fix, said APL's chief executive officer, Ron Widdows. But is it a long-term solution? "Probably not," he said. "The Panama Canal will be saturated by 2007 or 2008 and will be maxed out. Then what?"

In this new world of deteriorating service reliability and rising costs, Widdows continued, there's only one way to manage. "We've become more flexible, and we're suggesting to our customers that they do the same."

What does that mean? Perhaps it's time to try alternative gateways, provide carriers with better forecasts, and move shipment volumes more evenly throughout the year. Quite frankly, there's little choice but to optimize within the existing infrastructure while taking advantage of the alternatives—no matter how much risk may be involved.

Michael A. Levans, Chief Editor

Comments? E-mail me at michael.levans@reedbusiness.com