Logistics Crisis Looming

Discussion
Aug 31, 2005
George Anderson

By George Anderson

According to Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, 10,000 truck companies fold every time the cost of diesel fuel increases by a dime.

With the cost of diesel fuel up more than 40 cents in the past year and further increases expected there is clearly cause for concern, writes Robert Malone in an opinion piece on Forbes.com.

In fact, there is sufficient evidence, according to the author to suggest, “The danger of a widespread U.S. logistics breakdown is here and staring us in the face.”

Mr. Malone contends current capacity for truck to haul goods is already stretched. The fuel used by trucks now accounts for 21 percent of the nation’s total fuel consumption and the demand continues to increase as congestion on roads and other factors reduce the mileage traveled on each gallon.

Rails offer a partial solution to the fuel usage element but, according to Mr. Malone, “the U.S. corridors and hubs are in need of major overhauls and higher technology extension at a price that reaches into the hundreds of billions of dollars.”

Something clearly needs to be done but what?

Mr. Malone offers a number of recommendations for what is and is not needed.

What isn’t needed, writes the author, is another “presidential commission.”

As to what can be done, he suggests work begin immediately on short-term projects improving roads, rails and ports financed by existing government funds or emergency funds if current budgets do not cover the cost of financing necessary projects.

Longer-term solutions include a greater government commitment to aiding intermodal transportation where a combination of shipping methods are used to move products from their point of entry into the supply chain to their final destination at retail.

He also suggests greater investment in pursuing alternative vehicles and fuels. Hybrids and hydrogen as a fuel are seen as plausible options.

Moderator’s Comment: Is “the danger of a widespread U.S. logistics breakdown is here and staring us in the face” as suggested in the Forbes.com article?
What points raised in the article do you believe are most important to address?

George Anderson – Moderator

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6 Comments on "Logistics Crisis Looming"


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David Berg
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David Berg
15 years 6 months ago
There is a huge risk of a slow meltdown; however, the very nature of independent trucking is also it’s salvation. The only reason that independents close shop when fuel prices go up is because they can’t pass those costs on to their customers. However, when enough independents close up that goods can no longer be delivered on a timely basis, then their customers will have no choice but to raise what they’re willing to pay to cover the increased cost of fuel. This will be particularly true for goods with limited shelf life. As trucking companies go out of business, companies will have to pay a premium to move to the top of the line, otherwise their goods will go bad before they ever reach the stores. The increased pay will then reverse the trend and lure people back into the trucking business. In other words, the law of supply and demand works. And it works best in areas like independent trucking where you have lots of individuals making independent decisions, as opposed to only… Read more »
Bill Bittner
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Bill Bittner
15 years 6 months ago
Intuitively I would have to agree with the Forbes’s article in its assessment of the infrastructure. I don’t have enough personal knowledge to dispute it. I also agree that something has to be done to lesson transportation costs. I think the first step is to make better use of what we have as we also make bigger changes for the future. More efficient use of our current infrastructure can be accomplished several ways. The simplest is to begin running our retail businesses off of “inventory and forecasts” rather than “orders and shipments.” By using forecasts to plan capacity and then executing to the capacity, retailers can make much better use of their transportation dollars. This means the number of DC deliveries (capacity) will be based on forecasted need, most effectively by category and based on weight and cube of the of the average container in each category. When the actual inventory numbers are factored into order generation, the planned capacity will be used to allocate the space to the items most needed. Extra items can… Read more »
Mark Lilien
Guest
15 years 6 months ago

Ever since motor freight pricing was deregulated, the industry’s profit margins have been challenged. It’s hard to compete in a commodity service industry. When costs rise, the marginally profitable players have little pricing power and they go under. The remaining players will have greater pricing power when the marginal players go under. The nation would benefit from appropriate infrastructure improvements to its roads and rail lines, but it’s clear that there will be no push in this area from the government. If the auto industry is a guide, alternative fuels for trucks will be Japanese innovations.

Dave Wilkening
Guest
Dave Wilkening
15 years 6 months ago

No doubt a presidential commission will happen anyway.

I think that the idea of immediately improving heavy, and more importantly, light rail with funds that are currently supporting roads should be the first move. This could mean that private railroad “right-of-ways” become government owned and supported with tax dollars. Or perhaps, Interstate 70 and/or 80 should have a heavy rail line running down the median.

The better solution is to have an energy policy that rewards investment in alternative vehicles and fuels. Hybrids and hydrogen as a fuel are seen as plausible options.

Ed Dennis
Guest
Ed Dennis
15 years 6 months ago
While I agree that transportation is a potential problem, I have problems with the supporting statistics (lies, damn lies and statistics). 10,000 trucking companies go out of business every time the cost goes up 10 cents. How big are these trucking companies? Are we talking about 10,000 “one truck corporations” that were operating on a shoe string and over financed to begin with? If 10,000 trucking companies have gone out of business then how is anything getting delivered anywhere now. If the 10,000 companies accounted for any real portion of the US trucking industry then freight prices would be going through the roof. Why don’t we compare these “statistics” with the number of first year business failures (which tend to be measured by non renewal of business licenses)? My experience is that many many small businesses change their name (contractors, roofers, painters) every year to avoid legal obligations due to shoddy work. I am not saying this happens everywhere and I am not saying it should be applied to independent truckers. I am only saying… Read more »
Don Delzell
Guest
Don Delzell
15 years 6 months ago
Without trying to solve one of the many societal imponderables (like how to run an effective public school system, or provide for affordable health care) represented by the nation’s logistics infrastructure…let’s question some things. Economically, if costs rise, the provider attempts to pass them along to the purchaser, and so on down the value chain. If an alternative option exists at a lower cost with equivalent performance, the purchaser will choose that option. Did I miss something somewhere? Some breakthrough in transportation technology? Is there some way of moving stuff from “here” to “there” that doesn’t require petrochemicals? I have clients, small ones, who ship via independent truckers. The rates for shipping are rising with diesel prices. Maybe not in direct proportion. If these 10,000 companies fail with each dime, who is picking up the freight they hauled? Why can those providers compete but the 10,000 not? Absolutely we need, as a nation, to invest in logistics infrastructure. Good luck selling that in any national election involving taxes. I agree with the sentiment, just not… Read more »
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