Global Logistics and Supply Chain Strategies - October 2008 - (Page 70)

Changing Strategies to Deal With Higher Transportation Costs A thought leader explains why and how supply chain strategies must evolve in order to cope with the long-term consequences of the rising cost of fuel and transportation. Transportation costs all over the world have dramatically increased throughout 2008, largely in part to fuel costs, surcharges and related rate hikes. More recently, global economic sluggishness and volatile oil prices have bewildered manufacturing and retail executives trying to manage their supply chains. To find out how these volatile shifts are permanently changing logistics strategies, Global Logistics & Supply Chain Strategies spoke to Brooks Bentz, who is a partner in Accenture’s supply chain management service line and is responsible for leading their supply chain transportation practice globally. His expertise spans 37 years in transportation strategy and operations, outsourcing, third-party logistics and fleet management, as well as strategic transportation procurement and network optimization. society, we collectively have short memories. Will people and companies revert to past behavior because they can, or will they look for cheaper, better energy solutions? We’ll see. Q: What are smart companies doing to deal with the rising cost of fuel and transportation? Bentz: From a strategic standpoint, carriers and shippers have already figured on fuel prices driving up transportation rates over the long term. In fact, we are already seeing conversion from truck to intermodal and even to carload rail for certain products. The just-in-time era where companies opted for faster, smaller and more frequent deliveries is being re-evaluated by most companies. We will see a shift to more inventory in the pipeline. One trend I do see is more collaboration on line hauls. If three or four retailers are all selling in the same market and all buying from the same vendor, why not put everything on the same truck for transcontinental moves? We are working with companies on that concept right now. A mathematical model Accenture has developed indicates that companies are likely to build more distribution centers closer to customers to reduce transportation and delivery time. We are not talking about a doubling of DC networks, but the increase will not be inconsequential. A network that now has five DCs may go to seven. The DCs will also be smaller. Many of my clients are looking at DCs that are 400,000 to 500,000 square feet rather a million-plus. These DCs will also be much more automated, so they are more economical in terms of labor and construction. Q: Fuel costs skyrocketed earlier in the year forcing up all transportation costs, but recently moderated. What is the real trend for fuel costs, and how is the logistics industry reacting to high costs and volatility? Bentz: Many studies have firmly established that world oil production has peaked. That means supply from any given well or oil field will gradually decline until there is no more. You do not have to be a geologist or scientist to realize the long-term reality is that there is a limit to the reserves of oil that is accessible at any price. At the same time, worldwide demand is rising. Vehicle miles in the U.S. may be down three or four percent from last year, but that is only in the U.S. Prosperity and economic development in India, China and other developing countries is going to push demand up for oil. Just look at the increase in the number of cars in China. Everybody wants one. Global competition for fossil fuels is rising faster than we can find it and drill for it, so fuel prices will have to go up. As you point out, oil recently dropped 30 or 40 dollars, which sets up an interesting dynamic. As a Q: Are rising fuel costs permanently changing the trucking industry? Bentz: I think there have been about 1,200 trucking company failures since the beginning of the year. No one really knows what the impact 70 OCTOBER 2008

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Global Logistics and Supply Chain Strategies - October 2008

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