December 13, 2010
Column | fastlane

Top 10 logistics challenges for 2011 (and beyond)

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

By Clifford F. Lynch

What issues will bear watching in 2011? With apologies to David Letterman, I have once again conjured up a "Top 10" list of developments that should be of concern to logistics and supply chain managers. Some are positive. Some are negative. But all are important. In no particular order, they are as follows:

1. The economy. Although the recession has officially been declared over, there are many who will disagree. With millions of Americans still out of work, it's difficult to see a significant recovery on the near horizon. Until we do, we must be concerned about the financial state of carriers, shippers, and individuals. It will be years, if ever, until we get back to "business as usual" in the supply chain.

2. The price of diesel. According to Department of Energy projections, diesel fuel will average $3.23 per gallon in 2011, or 25 cents higher than in 2010. While we're likely to see some fluctuations, I believe fuel will continue to be a thorn in the side of both carriers and shippers.

3. Rail regulation. As was the case last year at this time, there is still a bill in Congress that would change the way the rail industry is regulated. While I sympathize with captive shippers, I think rail reregulation would be bad public policy, leading to higher prices, reduced productivity, and capacity constraints. It's difficult to tell what the new Congress will do, but hopefully, this bill will collapse under its own weight.

4. Continued deterioration of the nation's infrastructure. In spite of stimulus spending, we've made little, if any, progress on this front. We are nowhere near where we need to be to accommodate our growing volumes of highway and rail traffic. If the economy improves dramatically, it will only exacerbate an already bad situation.

5. The surface transportation bill. Legislation to replace the current, and oft-extended, highway spending bill is expected to emerge from Congress in 2011. It will be interesting to see how it is handled by the new chairman of the House Transportation and Infrastructure Committee, John Mica. This bill has been languishing in the House for 18 months.

6. The national export initiative. In his 2010 State of the Union Address, President Obama outlined a strategy to double U.S. exports over the next five years, from $1.57 trillion in 2009 to $3.14 trillion by 2015. This may be difficult given the limitations of our current infrastructure and port capacity. The nation's ongoing trade dispute with Mexico won't help the cause. Mexico, one of our most important trading partners, has levied tariffs on various imports from the United States because we can't seem to resolve our long-standing differences over cross-border trucking.

7. Higher truck rates. Rising fuel costs and new regulations governing engine emissions will mean higher truck rates in 2011. Some carriers have already put through rate hikes, but look for more ahead. We may be shifting to a carrier advantage position. Much will depend on what happens to YRC.

8. Trucking capacity. If the economy improves, capacity problems could develop. Many carriers sold off equipment during the slowdown, and potential driver shortages could limit the number of vehicles on the road. While new truck orders are up, we still could experience an imbalance.

9. Ocean shipping. With the Panama Canal expansion scheduled for completion in 2014, several steamship companies are ordering new post-Panamax vessels. Look for continued expansion and retrofitting at some Gulf and East Coast ports in order to accommodate the giant ships.

10. Security. Following the recent attempt to blow up cargo planes with package bombs, we can expect to see further security restrictions on international shipments. It will be impossible to plug every leak, but the government and carriers will keep scrambling to seal any gaps that are detected.

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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