Immovable Feast

April 1, 2008
Logistics depends on an underlying infrastructure which is often inflexible. Large, visible problems can be dealt with. Trains can divert around disruptions

Logistics depends on an underlying infrastructure which is often inflexible. Large, visible problems can be dealt with. Trains can divert around disruptions if the tracks are there to carry them to destination. Ships can dock at a different port, and aircraft can land at alternate airports. Trucks can be rerouted, but they still need roads to drive on.

When the underlying infrastructure is only damaged and not missing, the problem is less visible. That doesn’t mean it is without consequences, only that the situation has not escalated to the point that it can’t be ignored.

Recent stories that a damaged crane at the UK port of Southampton had triggered a month-long crisis illustrate the slow burn on infrastructure problems. It started in January when a crane collapsed on a ship. Inspections of similar cranes led to nearly half the terminal’s cranes being shut down for a period of time and this caused “scores of ships” to be diverted. The problem of the damaged crane is only part of the story. The fact that Britain’s second busiest container terminal had no spare capacity sparked a closer examination of conditions at other UK ports.

Suddenly the air was full of terms like infrastructure, congestion, capacity and growth (10% per year for container shipping into the UK, by the way). The Southampton terminal was in the midst of an expansion program, so there may be a sigh of relief that the problem is in the process of taking care of itself.

In the US, a backlash against foreign investment in US infrastructure (like the Indiana toll road) mobilized the country’s second-largest union to urge that state pension funds be used to invest in domestic infrastructure. Odd that the crisis call for more infrastructure investment has been echoing across the country for years and it takes foreign investors responding to that call to elevate the issue to an action item for domestic funds managers. It’s the right thing to do, even if the motivation is a bit skewed.

When US presidential candidates started bashing the North American Free Trade Agreement
(NAFTA), more than a few journalists took note of figures released by the US Department of Transportation showing growth in surface transportation trade with the country’s two largest trading partners increased 73.5% in December 2007 vs. December 1997. This led the UK’s Transport Intelligence to observe, “A question mark will exist over manufacturers’ and retailers’ distribution strategies throughout the region [until the election clarified the US position on NAFTA].”

Infrastructure threats aren’t just physical, they can also be fiscal or political. And they are not limited to particular geographies. With a little imagination, you can come up with plausible threats in other regions. Consider how concerns over construction safety could slow China’s infrastructure expansion, a shortage of supplies of critical components might stop expansion of a rail line in India, or protests by environmentalists could delay completion of container terminals in Rotterdam. These are all very believable scenarios that could happen if events simply provide a small nudge in the wrong direction.

Supply chains are resilient, but they do have limits. It’s important to keep an eye on the horizon for any sign of a gathering storm and then have some alternatives ready if they are needed.

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