C. F. Lynch & Associates

Beyond the Numbers

By Clifford F. Lynch

DC Velocity, August 2006

For the past 17 years, the logistics world has awaited the release of the annual State of Logistics Report each June with great anticipation. The report, which essentially provides an accounting of the United States’ total annual logistics bill, offers a detailed look at that bill’s 12 line items as well. But for all the analysis and insights provided by the report’s founder, Bob Delaney – and following his death, by his associate Rosalyn Wilson – what everybody really wanted to know was the latest total. How much was it? Did it go up from last year, drop, remain the same?

We can tell you that now (the 2005 results were released in late June). But unfortunately, the news is not good. The upward trend that began in 2003 continued. The 2005 total logistics cost, $1.183 billion, represented a substantial increase over 2004’s $1.027 billion and 2003’s $947 million. Costs were higher in nearly every area measured.

In any event, $1,183 billion is the figure we’ll be fixated on for the next 12 months. We’ll see this number in hundreds of presentations and articles – so many times that we’ll come to know it by heart.

But how many will remember the theme of the 2005 presentation? Hint: It was the same as the 2004 presentation’s: security. In her address, Rosalyn Wilson emphasized the need to "embrace security as a core business function" in an effort to find a solution to overall security issues.

Though she has twice now sounded the alarm on security, from what I can see, very little of substance is being done about it. In the April issue ("Dubai or not Dubai?," page 27), we wrote about the political and media firestorm that erupted over Dubai Ports World’s proposed purchase of P&O Steam Navigation, the operator of ports in New York/New Jersey, Philadelphia, Baltimore and New Orleans. It quickly escalated into the security crisis du jour, and there was a considerable amount of posturing about port security. At the same time these emotional debates were taking place, however, we only managed to inspect about 5 percent of the containers entering the United States.

This years’ State of Logistics Report estimates that 20 million containers are circulating worldwide, with approximately 7 million moving through U.S. ports each year. This suggests that somewhere on the order of 6.6 million containers are not being inspected. Now we’re seeing the expansion of the so-called inland ports, to which containers are being hauled by rail directly from the port of entry. Upon arrival at these various inland cities, the containers are unloaded and the product goes into distribution centers or moves on to other destinations. Cities such as Dallas, Memphis, Kansas City and Chicago boast impressive intermodal facilities; and billions of dollars are currently earmarked for railroad and facility construction or expansion.

From a logistics perspective, this makes perfect sense, but from a security point of view, it only exacerbates an already serious problem. As a nation, we have concentrated on port security at the expense of rail security. Ironically, our neglect of the railroads has made them attractive targets. Aware of this, the carriers have installed their own protective measures, but is that enough? Can they, acting alone, afford to do everything that needs to be done? Probably not.

Personally, I detest the idea of government involvement in the supply chain; but in this instance, I believe it’s time for Congress to tackle the issue head on. It is very easy to write about these problems; it is much harder to solve them. But they must be addressed. While it is important to protect ourselves from the enemy without, when it comes to the supply chain, the real threat is the enemy within.



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