Right now, the transportation systems that support the economy appear to be highly efficient.  To the casual observer, whenever a company needs to move its goods around the country or around the globe, it can do so fairly cheaply and easily.  

Yet, according to a recent Harvard Business Review¹ article by George Stalk of the Boston Consulting Group, the present recession is masking a crisis of global proportions.  When the economy rebounds and demand begins to exceed its previous peak levels by even a little, there won’t be enough capacity to move the world’s goods around. For example, truck traffic is increasing at a rate that far outstrips the construction of roads in the U.S. and Europe. Similarly, while freight volume is going up sharply, the railroads are actually reducing the amount of track they have available and delays are already increasing.

In terms of global shipping, the largest seaport ports in the U.S. and Europe were already up against their capacity before the recession.

Twenty U.S. airports are expected to exceed their capacities by 2015.  Yet, no new U.S. airports are in the works.

As the world’s biggest business economy, the U.S. is particularly vulnerable and few executives even recognize it today.  One of the reasons for this problem is explained by the history of manufacturing in the U.S.  In past decades, companies attempted to reduce the costs of production by building large, efficient factories in low-cost areas where labor was relatively cheap and regulation was favorable.  It didn’t really matter that the customers were far away.  The nation developed new roads, faster rail service, better air transport, and more efficient container ships, which made shipping cheaper.  Fuel costs were also low and stable.

All of that has changed in recent times, as fuel became more expensive and the supply chains became overburdened and overcrowded.  When transportation reaches a bottleneck, it burns more fuel, exacerbating the problem.  Goods become tied up in transit, increasing effective inventory and reducing profits and working capital.  Logistics costs soar.

Even when deliveries are delayed, a company can adapt.  But if the system becomes erratic, then scheduling becomes a problem that can quickly escalate costs, as factories have to remain idle waiting for supplies.  This can be especially harmful when consumer demand for a product fluctuates, as it does with fashions and consumer electronics.  Companies can wind up with too much or too little of a product and miss the selling cycle altogether or else be stuck with inventory.

According to Engineering News,² the container shipping business, which is the mainstay of global trade, is growing at 10 percent a year, while port capacity remains static.  Much of this growth is due to off-shoring. While it may be cheaper to manufacture in China, for example, it becomes much less so if the products don’t arrive in a predictable fashion.

One well-known bottleneck is the Panama Canal.  According to an article in The Guardian,³ five percent of the cargo in the entire world has to fit through the man-made channel.  Not only is it crowded, but the newest ships, which are 1,400 feet long, can’t even fit through the canal’s locks.  There is now a $5.25 billion-dollar plan to expand the canal.  But there’s no telling when it will be completed.

Meanwhile, more and more goods are being shipped every year.   The best estimates indicate that the amount of goods shipped via container will double by 2017, while the fleet of container ships will increase by 60…

Via Trends Magazine