Mhlnews 7283 Knight Supply Chain 0
Mhlnews 7283 Knight Supply Chain 0
Mhlnews 7283 Knight Supply Chain 0
Mhlnews 7283 Knight Supply Chain 0
Mhlnews 7283 Knight Supply Chain 0

If You're Looking for a White Knight to Save You, Better Look in the Mirror

Aug. 16, 2016
While the national supply chain is sound, it wasn't built for the pressures that technology and regulations are putting on it.

You've no doubt noticed by now that it's election season (it seems that politicians today spend far more time campaigning than they do actually governing, which explains why almost nothing ever gets done). In this year's presidential elections, we have two major candidates who have raised pandering to an art form, with little else on their resumes suggesting that they have much to offer the citizens of the United States. Inevitably, Mrs. Clinton and Mr. Trump will suggest that the country's infrastructure—roads, highways, ports—are in pretty bad shape and that if elected, by golly they'll do something about that. How magnanimous of them, to suggest that the money we've spent on toll roads and highway taxes that was earmarked for maintenance and repairs might actually be used for maintenance and repairs.

Of course, presidential candidates rarely address anything to do with the nation's supply chain because a) they don't know much about it, and b) the mainstream media don't care enough to ever report on the supply chain except during emergencies. Be that as it may, according to the CSCMP's annual State of Logistics Report, "addressing the state of U.S. infrastructure will be critical to a productive logistics sector." 

Based on analysis conducted by the American Society of Civil Engineers, more than $2 trillion needs to be invested in surface transportation between now and 2025. However, although the Fixing America's Surface Transportation (FAST) Act earmarks $305 billion in funding through 2020 (or roughly 15% of what's needed), most of that money is targeted for highway projects. The FAST Act, according to the team of A.T. Kearney analysts who produced this year's State of Logistics Report, calls for less than $5 billion in funding for large, nationally significant freight projects. And given how long it took Congress to come up with any kind of meaningful transportation bill, the chances of more funding coming available any time soon are closer to none than slim.

Acknowledging that nobody can predict the future, the A.T. Kearney team nevertheless foresees one or more probable scenarios playing out relative to the state of logistics in the U.S. over the next few years:

  • Cruisin' Down the Highway: Sounding more like a utopia than a real-world possibility, this scenario imagines a world of open technologies and autonomous vehicles, full collaboration between supply chain partners, and a regulatory climate based on trust and understanding. Like I said, a fantasy.
  • Middle of the Road: A.T. Kearney sees this scenario as the most probable, but I have my doubts. This is a world of incremental rather than system-wide improvements, with shippers maximizing their use of transportation by focusing on regional or central distribution centers. Robots are used sparingly.
  • Stop Signs and Red Lights: I'd say this is the more realistic scenario, as it imagines a supply chain climate of fierce operational constraints, driver shortages, high fuel prices and regulatory barriers to new technologies like drones. Only the strongest companies and strongest technologies come out a winner.
  • Dead End Street: Those of you even more skeptical of the government's role in transportation than me might think this is the most likely of scenarios. Picture a world where regulators are inflexible, where the marketplace is in continual shakeout mode, where consumers are faced with ever-rising costs and limited service differentiation. Come to think of it, this does sound a lot like what we're seeing now, doesn't it?

In any event, business logistics costs rose by 2.6% in 2015, which is quite an improvement over the average growth rate of 4.6% annually over the previous five years. The main reason for the drop is, of course, the decline in fuel prices, which resulted in a drop in fuel surcharges for almost every transportation mode. What happens next is anybody's guess, but A.T. Kearney properly suggests that shippers be prepared for a market correction in energy costs, an end to overcapacity in the trucking market, and continuing driver shortages hampering the carriers' ability to provide the kind of consistent service their customers require.

"Today, the logistics system is sound," the A.T. Kearney researchers note, but "gaps in infrastructure and accelerating trends for speed will increasingly pressure a system that was not designed for e-commerce-driven ‘last mile, last minute.'" As ever, then, the best supply chains will be those overseen by the best prepared managers. It won't be the government riding in to save the day; you're going to have to be your own white knight.

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