Looking Ahead

Looking Ahead

The logistics world's sobering question of 2004 came just as the industry was taking stock of the latest in a series of seemingly unstoppable improvements in logistics efficiency.

After all, despite a "demanding" year of rising costs in 2003, logistics spending as a piece of the overall economy fell yet again that year and was only 8.5 percent of overall GDP, with the inventory-to-sales ratio falling to a historic low of just 1.32 months of supply.

With such improvement, Rosalyn Wilson was asked after delivering the annual "State of Logistics" report in June, had shippers exhausted the efficiencies they could squeeze from the supply chain?

There was no way to tell back in June, but as 2004 was ending it looked like plenty of shippers were exhausted even if their opportunities for logistics efficiencies were not.

 

The lasting memory of 2004 will be of some 100 container ships anchored off the coast of California, waiting for dock space to unload their huge volumes.

To the optimist, the waiting line was a testament to the growing power of global trade, to the ability of the United States economy to recover and adapt. But the other view is that this backlog represents the enormous challenge confronting the logistics industry as managers of ever-longer supply chains push to the boundaries between corporate logistics strategies and execution.

In the early part of 2004, the challenge for logistics managers was managing a growing flow of goods in a rapidly improving economy, ensuring that their companies would take full advantage of the turnaround while maintaining the lean inventory strategies that had kept costs down in years past. By September, fuel prices were soaring, truck trailers were full, Long Beach was loaded and logistics strategies were out the window.

Now, the big item on every logistics manager's project list is how to rein in the transportation spending, recover those long-lost efficiencies and, by the way, help turn that inventory into revenue.

Some may do that, but the vast majority will find that the barrier they hit in 2004 was simple reality.

Whether it was a logjam at an intermodal yard in Texas, a container ship operating as a tramp steamer in search of West Coast dock space or a loading dock stacked with pallets waiting for a trailer, the transport snafus of 2004 were the inevitable result of logistics networks running as lean as shippers could bear. A supply chain running lean, as shippers know, inevitably will come up empty unless managers hold out safety stock.

In transportation, that's called overcapacity, but transport operators are looking for the same efficiencies as the rest of corporate America and the shippers looking for disciplined, reliable service know that they'll get it from disciplined, efficient logistics providers.

As executives from several trucking companies told us last month, ROI - return on investment - is their measure now, not basic revenue.

Several logistics managers tell us they are looking to improve efficiency based on what they learned in 2004. It was a tough lesson, but after all, they paid for it.