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Home » missing the boat
outbound

missing the boat

August 1, 2007
Mitch Mac Donald
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As a source of statistical data on the logistics industry, nothing rivals the Council of Supply Chain Management Professionals' annual State of Logistics Report. In page after statisticsfilled page, the report offers a detailed accounting of Corporate America's freight and logistics spending over the previous year, providing a line-by-line breakdown of expenditures on warehousing and inventory management, transportation services, and administration.

All this, of course, leads up to the big reveal: the nation's total annual freight and logistics bill. It's always a jaw-dropping number. As reported in last month's issue of DC VELOCITY, the latest annual report, which was released in June, shows that business logistics costs amounted to a staggering $1.3 trillion in 2006—an increase of $130 billion over the 2005 figure. Not only is that a very, very large bill, but it also represents a whopping 9.9 percent of the nation's Gross Domestic Product (GDP). At the risk of oversimplifying, that means that roughly 10 cents out of every dollar spent by U.S. businesses last year went to logistics.

Though the showpiece of the report may be the spending data, there's much more to it than eyepopping numbers. The report also provides thought-provoking analysis. For each of the past 18 years, the report's presenter—first the late Bob Delaney and now his former associate, Rosalyn Wilson—has enhanced the presentation with commentary on the statistics contained in the report. It's those insights—not the stats on, say, commercial paper rates—that prove to be the most memorable part of the presentation.

This year, for example, Wilson cut through the statistical fog surrounding the impact of rising fuel prices on air carriers by summing it up this way: A penny increase in the cost of jet fuel, she told the audience, drives up airfreight carriers' annual fuel costs by $200 million.

She also offered valuable insight into recent inventory trends. For the past several years, all the talk has been about the "leaning" of business inventories. Wilson pointed out, however, that although retail inventories inched up just 2.8 percent from 2005 to 2006, inventories in the wholesale sector rose a whopping 9.5 percent. Inventories aren't shrinking, she said; they're simply being shifted elsewhere in the supply chain. "The growth in retail inventory levels slowed," she noted,"because retailers are cutting their stock and foisting it back on their suppliers to hold."

In her presentation, Wilson also sounded a warning that's hard to ignore: She suggested that we might be missing the boat (no pun intended) when it comes to the maintenance of the nation's inland waterways. "[Waterways are] a resource that is sinking into disrepair that could become a vital link in adding capacity and taking some pressure off vital modes in the center of the country," she said. A single barge can carry the equivalent of 58 motor carrier truckloads, and do so at one-tenth of the cost, she added. Shifting freight to barges could help reduce both highway congestion and costs.

But taking advantage of this underutilized resource won't be easy. Along with the cultural obstacles (namely, persuading companies to depart from well-entrenched shipping patterns), there are some physical hurdles. The plain fact is that after years of neglect, the inland waterways infrastructure has fallen into serious disrepair. Of the 257 locks included in the nation's 12,000-mile inland waterway system, for instance, nearly 50 percent are functionally obsolete, according to the Army Corps of Engineers. That's likely to increase to 80 percent in less than 15 years. The cost to repair or replace the locks is pegged at $125 billion.

That's a big expense, to be sure. But the investment could pay for itself many times over if it eases the pressure on the nation's over-taxed road and rail networks.

With America's highways and bridges crumbling and railroads fast approaching capacity, it appears there may be real value and benefit in pushing the government for funding to restore our inland waterways. The time to do something about it is now.

Transportation Maritime & Ocean Intermodal
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Mitchmacdonald
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.

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