C. F. Lynch & Associates

Go Global or Get Out of the Way

By Clifford F. Lynch

DC Velocity, July 2004

For years, the pundits have warned that globalization was upon us. Look beyond the shores, they’ve urged. The companies that mastered the intricacies of sourcing in Changzhou or exporting to Guadalajara would flourish, they promised. The rest would be left in the dust.

As prophets before them have found, the message often fell on ears that, if not exactly deaf, were at least partially blocked. But that doesn’t mean the pundits weren’t right. Growth in international business has defied expectations. According to the U.S. Chamber of Commerce, U.S. international trade in goods and services has grown to 26.9 percent of GDP today from 10.7 percent in 1970. Today, international trade totals over $2.0 trillion.

That growth is unlikely to stall anytime soon. A survey by the Foundation for the Malcolm Baldrige Quality Award revealed that 95 percent of CEO respondents identified "more globalization" as their top challenge over the next three to five years. Eighty percent identified improving their global supply chains as their top challenge. Needless to say, the CEOs’ objectives will quickly become the objectives of everyone in their organizations, logistics and supply chain managers included.

As business spins out of its purely domestic orbit, logistics managers will be caught up in the tumult. Their jobs will change; they’ll need new tools, new services and new skills. But most importantly, they’ll encounter new challenges in managing the business’s most basic functions. Here’s what they can expect:

A revamping of DC networks. Traditionally, importers have held inventories in distribution centers located close to port cities. But that’s starting to change. Dismayed by soaring truck rates and ever worsening congestion at ports and the surrounding areas, companies are relocating their DCs to places like Memphis, St. Louis, Indianapolis, and Louisville.

A surge in outsourcing. During the past two years, the number of companies hiring outside services to handle freight forwarding, customs brokerage and customs clearance has shot up by 50 percent. Though U.S.-based service providers with global reach have been in short supply, the void has been filled by foreign firms such as Kuehne & Nagel, Deutsche Post, Neptune Orient and Tibbett & Britten that specialize in cutting through the complexities of international trade.

Congestion on the roads and rails. A surge in international trade threatens to overwhelm an already overburdened transportation system. In recent months, rising truck rates have prompted managers to shift domestic shipments to cheaper intermodal service. Trouble is, that volume combined with a torrent of international containers could overtax the system, creating more bottlenecks like the ones reported on the Union Pacific Railroad in recent months.

A push for more, better technology. The complexity of global logistics will raise the bar where technology’s concerned. Shippers charged with overseeing duty management, compliance screening, landed cost calculations, customs clearance and document filing will require systems far more sophisticated than the warehouse and transportation management systems they currently use for domestic activities. These will have to be enhanced, if not replaced.

A demand for education. It’s estimated that less than half of the logistics executives in the country currently have global responsibilities. And it’s hard to imagine that anyone out there could be fully conversant with all of the complexities of managing all aspects of global trade. Education will be a necessity. Given that the Customs regulations for import shipments alone run well over 500 pages, it’s clear the training process won’t be quick or easy. But it will be necessary. It’s the price of living – and thriving – in a global market.



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