December 2004 | Commentary | Checking In

Outer Limits

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"We've reached the limit of what our grandfathers invested in infrastructure." So says one top rail executive.

If you manage supply lines originating overseas, you already know that port and intermodal capacity are sorely strained. An unexpected uptick in imports caused many to come up holding the short end of the intermodal capacity stick. Worse, options for diverting intermodal freight to over-the-road were limited. The capacity crunch there, as well.

Some might say with shadenfreud glee, "You've done your job of tagging demand to supply too well," suggesting we regress back to the days of bloated inventory in warehouses. Can these infrastructure inefficiencies destroy your ability to have true supply chain excellence?

Examples abound. The cost savings one cosmetics company gained by manufacturing in China were eaten up by airfreight charges for shipping from Los Angeles to Target and Wal-Mart. Sharp Electronics flew TV parts in from China. Toys R Us added 10 extra days to its supply chain.

It's not that we have too little inventory on hand; nor should we bulk up as a long-term strategy. It's that finely tuned transport practices expose the lack of attention paid to logistics infrastructure.

As I've said before, when the majority of manufacturing was done in the United States, the domestic transport network alone bore the load. These days, much more manufacturing is offshore and the global gateways must now shoulder this load as well. Add the growth in U.S. population and buying power, and it's no wonder that the infrastructure is sorely strained.

Whose fault is it? Can you really blame the ports? Los Angeles and Long Beach handle about 43 percent of U.S. imports, and import shipments grew 12 percent this year—three times what was expected.

The Pacific Maritime Association (PMA) blames the longshoreman's union, accusing them of playing capacity-based politics to boost union membership. The union points to the PMA's lack of labor and use of less-skilled "casual" workers.

But playing the blame game is a dead end. For the customer, the only thing that matters is, "Get it here or else."

Demand-driven logistics works hand-in-glove with a global transportation infrastructure able to support this business model. Continued negligence and reluctance to invest will damage our hopes of effectively competing in the global economy.

Having lived through this past holiday shipping rush, many will be tempted to breath a sigh of relief, saying, "Thank goodness that's over." But unless all interested parties act now, we'll be doomed, in "Groundhog Day"-like fashion, to repeat this again next year.


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