March 9, 2010
Column | fastlane

Top 10 logistics challenges for 2010 (and beyond)

Economists tell us the economy is improving, but the logistics/supply chain community will likely face challenges throughout the year. Here's what to watch for.

By Clifford F. Lynch

Economists are in broad agreement that a recovery is under way, but that's not to say our troubles are over. In fact, it's likely the logistics/supply chain community will continue to experience difficulties throughout the year.

What are the biggest concerns? With apologies to David Letterman, I have developed a "Top 10" list of issues that bear watching in 2010. In no particular order, they are as follows:

  1. The precarious health of the LTL industry. Weak volumes and cut-throat pricing have taken their toll on the LTL sector, which continues to struggle with inadequate earnings. YRC is the best-known example, but there are others as well. Con-way, for instance, lost $110 million in 2009*. This will not change without a significant improvement in the economy.
  2. The price of diesel fuel. After a temporary dip, fuel prices are once again on the rise. According to Department of Energy projections, the average retail price for diesel this year will be $3.00 per gallon. Although that's way down from a few years back, it's still high enough to be a major factor in the cost of moving goods. And we still have $80-a-barrel oil.
  3. Rail regulation. A bill currently in Congress would eliminate antitrust law exemptions for railroads and change the way the industry is regulated. While captive shippers certainly deserve protections, I believe this bill, if passed, could be a dangerous first step toward more regulation.
  4. The nation's deteriorating infrastructure. In spite of stimulus spending, we are making very little progress toward building the infrastructure needed to keep up with our growing rail and highway traffic. We need to think gray as well as green. If we don't, we'll pay the price in congestion and delays. It's been projected that at current construction levels, highway capacity will have expanded by 9 percent by 2043. Traffic, however, will have surged by 135 percent. This is not exactly a recipe for an efficient national infrastructure.
  5. The Mexican trucking dispute. We need to settle this once and for all. After dragging its heels for 17 years, it's time for the U.S. government to stop making excuses and give Mexican truckers what we promised under the 1993 North American Free Trade Agreement—full and free access to U.S. highways.
  6. Transportation capacity. As freight volumes recover, shippers may find trucks harder and harder to come by. Many carriers sold off equipment during the slowdown. And given their weakened financial condition, it's unlikely they'll be able to rebuild capacity quickly as demand picks up. Operators may be in short supply as well—many drivers lost their driving jobs during the recession and moved on to other occupations. The result could be capacity shortages more severe than we saw in 2005-2007.
  7. The sustainability movement and industrial real estate. For all its benefits, the green movement has the potential to create serious headaches for at least one group: real estate investors. While most new construction is "green," many existing, vacant buildings are not. The owners of these buildings may be forced to invest in costly retrofits in order to compete with new, eco-friendly construction.
  8. Quality. Unfortunately, quality has sometimes been a casualty of the economic decline. Many of us have cut corners to cut costs, but quality must be restored in the system. This will be a challenge for 2010.
  9. The weakened logistics service provider (LSP) sector. Like many other service providers, LSPs have suffered during the past two years. While some have responded by coming up with new ideas and processes, not all have. Those who haven't, must. If they succeed, the result will be a system of improved, more creative providers—a plus for the entire distribution system.
  10. Vested outsourcing. I believe this concept—under which clients pay LSPs for results, not processes—will establish a strong foothold during 2010. In fact, it could change the landscape dramatically.

*Author's Note: In this column, I expressed concern about the health of of the LTL industry; and as one illustration, mentioned the 2009 Con-way loss. As a matter of fact, most of that loss was a result of an accounting charge, and not a reflection on the health of their LTL business. In fact Con-way Freight made $51.3 million in 2009. I apologize to Con-Way and our readers for any misunderstanding.

About the Author

Clifford F. Lynch
Columnist
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 and co-author of The Role of Transportation in the Supply Chain. He can be reached at cliff@cflynch.com.

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