Editor’s Note (August 2, 2007): In the wake of yesterday’s tragic collapse of the I-35W bridge in Minneapolis, CFO.com has decided to republish John Goff’s article, which less than one year ago warned of increasingly serious problems with the nation’s crumbling transport system.
June 2005. Things were starting to heat up. A wave of scorching, humid weather had settled over the Midwest. During one particularly oppressive stretch, temperatures in Chicago topped 90 degrees for eight straight days — an early summer blaze not seen in more than 50 years.
Tempers were flaring as well. Notably, executives at electric utilities in America’s heartland were hopping mad at rail-cargo operators after a series of derailments in Wyoming’s coal-rich Powder River Basin, combined with track-maintenance problems, triggered delays all down the line. Soon, power-plant stockpiles had dropped to dangerous levels. Some nonregulated power producers, many of which had embraced just-in-time (JIT) inventory concepts, had to ship in coal from Central America or buy natural gas on spot markets — costly alternatives. “They took chances with their safety stock,” recalls Rick Navarre, CFO at coal company Peabody Energy, which operates three huge mines in the Powder River Basin: “I think they’ve changed their view now.”
A lot of supply-chain managers have changed their view about safety stock. JIT manufacturing may be standard operating procedure among U.S. businesses, but the approach requires finely tuned, well-synchronized supply chains. And while managers have long worried about transportation snafus in less-developed countries, they’re growing increasingly concerned about bottlenecks closer to home — on American highways, in rail yards, and at deepwater ports, the so-called “last mile” of the supply chain.
It’s hard to assess the extent of the problem. Few executives are eager to talk about missed shipments. (Motorola, Best Buy, and Dell all declined interviews.) Moreover, finance departments typically do a poor job of calculating the hit to earnings from botched consignments. But in announcing a new infrastructure initiative in May, then-Secretary of Transportation Norman Mineta estimated that freight bottlenecks and delayed deliveries cost U.S. businesses $200 billion a year. Says AMR Research senior vice president of strategic research Kevin O’ Marah: “Financial calculations go out the window if your goods are floating off the coast of California while your promo is being rolled out in stores.”
The shipping news isn’t likely to get much better, either. America’s 50-year-old interstate highway system is in desperate need of repair. Plans for new port facilities are few and far between. Rail lines require double-tracking. And nobody seems to want to drive a truck anymore.
At the same time, U.S. businesses are sourcing more from Asia and Europe. All told, the World Shipping Council reckons cargo movement in the United States (both domestic and international) will increase by roughly 60 percent between now and 2020. And logistics experts predict that the mounting tide of cargo may overwhelm the nation’s aging transportation network. If so, the last mile could become one gnarly stretch. “It’s a tightly strung system,” warns O’Marah. “A minor bump along the way can turn into a major problem.”