No margin for error

No margin for
error

Freight volumes are up, signaling at least an improvement in the U.S. economy. Financial highlights of U.S. motor carriers’ 2003 fourth quarter and full year offer more promise that the recovery is underway. But the long battle isn’t over yet.

It’s difficult in a presidential election year to separate fact from rhetoric. We expect inflated claims and excited language from candidates — even the occasional war whoop — but it’s just as important to weigh the words of business leaders as carefully as we do those of the candidates.

Richard Dauch, chairman of the National Association of Manufacturers (NAM), has a political agenda, and this is a good year to press it. Unlike some of the presidential hopefuls, he never specifically mentioned outsourcing, but Dauch told a meeting of governors and state leaders, “Make no mistake, the world is determined to wrest our manufacturing leadership away from us. Without a doubt, they want our jobs.” He went on to hammer escalating domestic production costs and “intense — often unfair competition” which makes it impossible for U.S. manufacturers to raise prices.

U.S. manufacturers are burdened with taxes, health and pension benefits, tort litigation, regulation, and rising energy prices that add 22.4% to the price of U.S. production relative to foreign competitors, Dauch continues. He urges, as many politicians have, leveling the playing field.

While the politicians and business leaders sort out just how to level that playing field, logistics has continued to work on preserving margins at manufacturing and retail companies. As Dauch admits, “Manufactured goods are transportable and thus compete globally.” U.S. manufacturers export as much in value in one month as U.S. agriculture exports in a year, according to NAM. In this global economy, that’s a multi-faceted challenge.

Offshore sourcing is a fact. Many of the products built in the U.S. contain components sourced overseas. If those products are then exported, some of the components inside are making a second international journey. There’s a component in each product that doesn’t appear on a Customs manifest — logistics.

To meet the price pressures of global competition, logistics must play a significant role in keeping costs low every time someone touches or moves a raw material, component or finished product from source to end consumer. If increased volumes are signaling the end of the downturn, many of the cost factors affecting margins have yet to be fully addressed.

Global competition will keep pressure on pricing, so the one way to hold onto margins is through improved productivity and efficiency. The U.S. is unlikely to bring its cost structure down to the level of other nations by eliminating healthcare and pensions, nor are other countries likely to catch up on worker costs any time soon.

Whatever the candidates say about human rights and fair trade, the pressure won’t be off margins in the near term. Logistics is the one component in every product that can still contribute to improved margins and competitiveness. This is no time to let down our guard.

Perry A. Trunick
executive editor

Logistics Today logo
March, 2004

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