Danger signs

Danger signs

Looking back over 2006, it cannot be said that this was a momentous year for international trade and logistics. If anything, it was more significant on the trade front - but not for anything positive.

If the multilateral system under the World Trade Organization loses its central role in global trade to regional agreements - as some predict it eventually will - the failed Doha Round negotiations this year and the emergence of powerful Asian blocs such as APEC (Asia Pacific Economic Cooperation) might be remembered as key turning points.

I don't believe that for the industry that facilitates trade, i.e. our industry, it matters much - in the short term. Trade liberalization has been in a stop-and-start mode for decades, and yet trade consistently grows at rates well in excess of economic growth worldwide, to the point that it is now outpacing infrastructure's ability to handle it at many locations.

Some deals are more significant to trade than others, such as China's 2001 entry into the WTO and the forthcoming expansion of the European Union. The real significance of the decline of the WTO, if that is what is really happening, is twofold.

First, the bilateral and regional deals that spring up in its place exacerbate the compliance burden on companies. A number of trade software companies have sprung up to help solve this problem (including Integration Point, the host of an in-depth Webcast currently on JoC Online, www.joc.com), but trade compliance - as distinct from security compliance - promises to be a growing challenge for companies in 2007.

Second, behind the so-far failed Doha Round is growing world disunity and tension. Developed nations, including the U.S., are uncomfortable with the rapid economic rise of the developing world, and their democratic systems translate those sentiments into election results such as what occurred in November in the United States. More anti-dumping actions, WTO cases and the probable non-renewal of fast-track negotiating authority next spring are the likely short-term results.

In logistics, 2006 was more or less a ho-hum year. That is good, but ominous. Despite overblown warnings of catastrophe, congestion proved to be only a minor factor in supply chains this year. Companies continued to diversify routes and ports of entry, and they increased the use of buffer inventory, which, combined with higher fuel costs, increased overall supply-chain costs after years of decline, studies suggest.

At-risk ports such as Los Angeles-Long Beach managed to keep cargo moving thanks to an increased longshore work force and better gate management, including the successful PierPass system.

In looking out to 2007, however, I see a number of reasons for concern. One is the situation at U.S. ports of entry. With intermodal rail costs increasing significantly as multiyear rail-ocean carrier contracts renew, more cargo will be diverted from rails to distribution centers, putting pressure on marine terminal gates, harbor drayage and local roads. This will happen at the same time that the ranks of harbor drivers could thin at gateways such as LA-Long Beach because of the federal Transportation Worker Identification Credential, which can't be obtained by illegal aliens.

All the while, I believe, volumes will continue to see strong growth because of the economy. Inflation is receding, meaning it's less likely that the Federal Reserve will raise rates next year, and problem areas in the economy appear to be largely limited to housing and automobiles. Wage pressure remains, so incomes are increasing, meaning more money will be spent. That points to continued growth at the ports.

The other issue for the industry to watch closely is security. The same gang of anti-trade, pro-security Democrats in Washington that is unlikely to renew fast-track authority for the president also will be pressing for additional cargo security measures. The SAFE Port Act did not, unfortunately, put the debate to rest. There is more to come.

But first, let's all have a happy and enjoyable holiday and New Year.

Peter Tirschwell is vice president and editorial director of Commonwealth Business Media's Magazine Division. He can be contacted at (973) 848-7158, or at ptirschwell@joc.com.