Economic Recovery: Grains of Sand

It is as if grains of sand had been sprinkled in the mechanism of the American economy in the aftermath of Sept. 11, a skilled writer in Business Week wrote recently. But sand eventually grinds machinery to a halt, so perhaps that was a little overstated. While the costs of 9/11 are great, there is no way our economy will grind to a halt. Shock it, slow it, perhaps, but the momentum is too great to stop it. Efforts to match demand to supply during the last decade will help us recover, not in a quick feast-or-famine fashion, but in a solid, gradual fashion.

What exactly are we up against?

Sept. 11 had a staggering impact on our economy—a $640-billion loss, estimates New York state-funded research conducted by DRI-WEFA. The physical damage could total two to three times that of Hurricane Andrew, our previous largest national disaster, according to the research. Beyond the physical damage cost, New York state alone stands to lose $5 billion a year in tourism and more than 100,000 jobs.

A more conservative $151-billion loss estimate comes from a study conducted by Decision Economics of New York. Overall security cost increases are pegged at more than $24 billion, but that includes non-logistics security costs and an overall increase in insurance, estimated in the $25-50 billion range. The business logistics function faces increased inventory and logistics costs ranging from $50 to $80 billion per year, according to Michigan State University estimates. If true, that staggering amount effectively obliterates the gains we have made through inbound logistics practices.

Consider the hidden costs of decaying transportation infrastructure, neglected even more now than in boom times as receipts from user fees fall and Highway Trust funds are diverted to security needs.

And there is the impact on global sourcing that makes inbound shipments to the states more difficult as we work through new security and documentation procedures. The worry is that once they are codified and bureaucratized, the weight of these new security procedures will slowly smother many businesses. The recent INS action of sending student visa approvals for dead terrorists is an extreme example of bureaucratic ineptitude.
Pinning your hopes on the government’s mastery of new security technology might be a stretch also. How long has it taken to implement new air traffic control systems and equipment? Never? One bright spot is the recent agreement between Canadian and U.S. Customs officials operating on each other’s territory to pre-clear and screen shipments, cutting delays at border crossings. A similar agreement with Mexico Customs is planned.

These workarounds are helpful, but not a solution. Let’s hope that once we deal with the immediate threat, we establish a geopolitical policy that will allow us to turn the clock back, at least partly. Most of us can only marginally impact government policy, but we can act to impact our enterprises.

Readers have related many initiatives they have taken to deal with these challenges. When aggregated, these initiatives are having a beneficial effect on our economy. Yes, we have some tough work ahead. But today’s best logistics practices have us better positioned to bounce back now than had this happened a decade ago.