When we first assigned this month's cover story on managing fuel costs, diesel was selling at more than $4 a gallon nationwide. Since then, thanks largely to a dismal economy, it has fallen back to close to $3 a gallon. That's good news only in comparison to July's $4.76 peak. Prices still remain well above historical norms and could jump again at the first hint of recovery.
Diesel costs, of course, have a direct effect on transportation costs, and transportation costs are a major component of distribution costs, so the price of fuel matters even for those distribution managers who never go near a bill of lading. Yet other than some hedging tactics or some hardnosed bargaining over things like fuel surcharges, no manager anywhere in a global supply chain has much, if any, influence over the price of fuel.
That's not to say managers are left without options, however. In the story that begins on page 36, Senior Editor Mark Solomon takes a look at some of the approaches within the control of distribution and logistics managers that enable them to mitigate the effects of high fuel prices.
Some of those tactics are not all that new—ideas like freight consolidation have been around for a long time. What's different is that the need to focus on building efficiency into distribution operations has become more important than ever, and not just as a result of transportation costs. The intensity of competition in a globalized economic system demands it as well.
In the vein of everything's being connected to everything else, it is hard to separate managing distribution costs from a whole slew of other issues. For example, the drive to reduce greenhouse gas emissions is intimately associated with more efficient transportation. And more efficient transportation is closely connected with how well our physical infrastructure works. And investment in infrastructure may be one of the best ways to spur economic recovery.
In that regard, I was pleased to hear President-Elect Barack Obama talk at some length about infrastructure investment during an interview in the last stages of the campaign. It would be naïve to think that it will be a top priority for the administration, given the array of more pressing issues it faces. But knowing that it is even on his radar gives some hope that a new transportation secretary will focus on designing an infrastructure investment strategy, and that proponents will not have to start over by explaining why these things are important. Several transportation funding laws come up for renewal in 2009. We'll watch closely how the new Congress and administration approach this critical issue—aiming, one hopes, for building an efficient and interconnected nationwide network, no matter the price of gasoline or diesel.