the calculus changes

It has been more than 21 years since then-President Carter said of the energy crisis, "With the exception of preventing war, this is the greatest challenge our country will face during our lifetimes." In calling for an energy policy aimed at reducing the nation's dependence on oil, he argued that action was needed to assure the country would be in charge of its own destiny. Little has been done since, and the consequences of inaction are becoming clearer.

Although as I write diesel prices have dropped by 10 cents a gallon from the previous week, prices remain at unprecedented levels, and transportation costs are causing managers to reconsider the structure of their supply chains. It is a trend notable enough that it has moved out of the business section and onto the front pages of U.S. newspapers.

A Page One article in the Sunday, Aug. 3, edition of The New York Times took a hard look at how the confluence of high transportation costs, concerns about global warming, and other factors—the politics of globalization not least among them—is changing the supply chain calculus. "Globe-spanning supply chains—Brazilian iron ore turned into Chinese steel used to make washing machines shipped to Long Beach, Calif., and then trucked to appliance stores in Chicago—make less sense today than they did a few years ago," wrote Times reporter Larry Rohter. He cited as evidence the decisions by Sweden's Ikea to build a manufacturing plant in Virginia and by some electronics OEMs to return to Mexico, which they had left for the lure of low wages in China.

It is probably far too early to know if we will have a wholesale return to the "neighborhood effect," as economists call the concept of locating plants and suppliers closer to consumers. It would be dubious at best to predict the end of globalization. It is far too potent a force, and transportation is but one—albeit critical—component of it.

Recognizing that efficient and effective physical distribution is crucial to economic health, we regularly write about these issues in DC VELOCITY. This month, for example, writer Mark Solomon provides insight into how the airfreight industry is coping with a host of economic pressures.

In the months ahead, we intend to address how forces like energy costs and sustainability initiatives are affecting supply chains. Our goal is to investigate how businesses and policymakers are addressing these challenges, be it through smarter shipping strategies, energy-saving technologies, revamped distribution networks, infrastructure investments, or other measures.

I won't go as far as President Carter, who called the energy crisis the moral equivalent of war. But for those who manage business supply chains, how they respond may prove to be the defining moments of their careers.