The United States as a Logistics Hub for the Americas - and Beyond
The United States has the world's largest, most efficient, world-class logistics infrastructure, which is currently under-going upgrades to handle growing capacity.
Location USA 2012
The United States is also a nation blessed with abundant natural resources, a growing population, a highly educated work force, efficient manufacturing, and an aging, but still excellent infrastructure. It is still the world's only superpower. But its biggest and immediate challenge is to maintain and strengthen that position into the future. One way for the United States to maintain this position is to continue to improve its leadership position in logistics and to improve its infrastructure.
"Lean and Mean"
During the past couple of years, the significant downturn in the U.S. economy has forced corporations that want to survive to look long and hard at their internal operations. For manufacturers, this meant dissecting their entire supply chain to capture savings by cutting costs and increasing productivity. This process included re-evaluating suppliers, looking at transportation options, improving inventory controls, reassessing location and facility requirements, fine-tuning work forces, and improving material-handling and packaging methods.
Likewise, logistics service providers - trucking companies, railroads, shipping lines, air cargo firms, brokers, expeditors, software vendors, etc. - have all had to improve their own cost and performance structures to meet their clients' needs. In fact, those that could not compete were forced out of the market. From 2007 to 2010, 8,000 trucking firms went bankrupt, according to a report published by Avondale Partners. It certainly was not business as usual. It has been a major retooling for all.
As a result, most U.S. manufacturers have literally become "lean and mean," with debt-to-cash ratios the lowest in five years at 3.06 percent. Despite industrial production only being up 5.3 percent in 2010, and the fact that only half the production volume lost during the recession has returned, manufacturers are experiencing all time high profits and an abundance of cash. But profits still are not enough to overcome risk. It should be noted that transportation no longer is a sound barometer for gauging the overall economy, as the growing service sector and the Google and Facebook type companies that do not produce goods are having a much greater effect.
U.S. manufacturers are more than ready as they are reacting to the protracted slow economic growth, which is being fueled by political and policy uncertainties (risk). They are not adding employees as their productivity gains and the slowed economy have negated their need to hire, which in turn has contributed to the high unemployment rate and has helped keep consumer demand in check. In addition, as the restocking of inventory ends, production is beginning to taper off a bit. Companies are cautiously waiting for the spring-loaded economy to trigger.
Ready for Retooling
This is not the first time for a major retooling of the U.S. manufacturing economy. American manufacturing underwent a major overhaul and upgrade during WWII and during the postwar years of the 1950s and 1960s. The United States felt it was its duty to rebuild the world economy and we went about it with gusto.
The U.S. economy was going strong and the world was its market. But by the late 1970s and early 1980s, other nations started to compete with America on a more serious basis. In particular, Japan was developing into a global economic power, second only to the United States. The Japanese were building new manufacturing facilities globally that were extremely modern and efficient. For the first time ever, robotics were being introduced and the term "supply chain" was born.
The 20- to 30-year-old American facilities simply could not compete. After a period of some hysteria, America was forced to retool. And while the Japanese had made great advances on the manufacturing floor, they had failed to do so across the entire spectrum of their business.
Timing also played a part. By the 1990s, when U.S. manufacturing really started to retool, advances in computer technology and other IT-related industries allowed the United States to leap-frog to a much higher level, implementing state-of-the-art solutions not only on the manufacturing floor, but also at the desktop-level in U.S. company headquarters, back offices, warehouses/distribution centers, and even back into their suppliers and forward to their retail outlets - indeed, across the entire supply chain. In addition, the U.S. began making investments in third-party expertise, from visibility software, to creative financing and assistance in strategic planning, to third-party logistics (3PLs).
Retooling Is Not Complete
Logistics means movement, and when things physically move, you have to have the proper infrastructure. Moving product efficiently and cost competitively is essential to supply chain success. One area attracting tremendous attention is the call for extended investment in transportation infrastructure.
America's highway system is the most important nationwide infrastructure it has. Although the U.S. highway system is world-class and extensive, it is typically more than 30 years old and in need of some significant repair/upgrade to meet the needs of a growing economy. More than 70 percent of the freight tonnage in the United States moves over its highways by truck. U.S. trucking accounts for 5 percent of the U.S. GDP, and trucks are the only mode of delivering goods to more than 80 percent of the communities in the country. Trucks also account for more than 80 percent of the value of cross-border trade with Mexico and more than 60 percent of the value of trade with Canada.
Bottlenecks and congestion are of major concern, as it is estimated such lost time costs more than $20 billion annually. Funding for highway repairs and expansion is at a crossroads. The federal fuel tax, which has historically been used to fund highway infrastructure, does not produce enough needed revenue. Revenues are declining as more vehicles are becoming more fuel-efficient. The U.S. Congress must address this need on a more long-term basis. In the meantime, some $23 billion has been approved for the Highway Trust Fund and Surface Transportation Program, extending their funding to March 2012.