Material handling and logistics are integral to U.S. economic health, but the well-being of these disciplines is as vulnerable to the effects of state and federal regulations and policies as our economy is. Some regulations are necessary, but excessive regulation can stifle innovation.
In some cases, the federal government’s tax and labor laws and resource restrictions can prevent the private allocation of resources needed to support market growth—ultimately resulting in unintended consequences such as economic stagnation.
One example of this came to light while I was touring the Nestle distribution center in Allentown, Penn., in July 2009. This 1.2 million square foot facility employs about 225 people. I was on a fact-finding mission to identify skills needed by employees working in the facility, and I met with the facility’s distribution manager.
He told me that after the American Recovery and Reinvestment Act of 2009 went into effect unemployment benefits were extended to 72 weeks. The result? Applications for employment at his facility dropped off. Potential applicants decided they’d rather stay at home collecting benefits than end up on the night shift at his facility for $14 per hour.
Full-time employees at Nestle receive full benefits. Now the federal government has extended unemployment benefits up to 99 weeks, further exacerbating the problem.
How do distribution managers view government oversight in their industry? According to an October 2010 MH&L reader poll, one in five respondents identified government regulations as their biggest challenge. Thirty-five percent answered the economy, but burdensome regulations inhibit economic activity and growth.
After talking to Don Ackerson, director of distribution at SAFCO Products, it was apparent to me that government regulations can result in additional transportation and storage costs as well as increased product costs—all of which are passed on to customers. SAFCO imports goods through California ports which are subject to the Long Beach and Los Angles Pier Pass traffic mitigation fees. Their distribution centers operate during daylight hours and are subject to the maximum rates.
The California Air Resources Board (CARB), w hich often develops regulations later adopted by the EPA for the other 49 states, developed compliance measures dictating materials to be used in manufacturing, inventorying and labeling wood furniture. SAFCO must use labels citing CARB compliance, segregate inventory bound for California and follow strict guidelines when scrapping damaged or obsolete inventory.
On the federal level, EPA emissions monitoring and reduction initiatives have greatly reduced the use of propane fork trucks in distribution centers. Don says for him propane fork trucks cost less to purchase initially, have greater lift capacity and can operate across several work shifts without the down time.
So what do I believe the legislative and executive branches should pursue?
1. Lower the maximum corporate income tax rate from the current level of 35 percent to 20 percent incrementally over three years. Make it permanent law, thereby creating certainty for businesses.
2. Cap unemployment benefits at 39 weeks, forcing some of the unemployed labor back into the workforce. Unemployment benefits were originally enacted to cover the transition between job loss and a new job. A portion of the savings resulting from cutting unemployment benefits from 99 weeks needs to be made available for unemployed personnel to enroll in re-training courses. Skills enhancement can be a condition for receiving unemployment.
3. Kill onerous federal regulations and let the states enact what is necessary for their particular geographies and demographics. Let the states determine if they will be “right to work” states. Encourage competition and innovation.
4. Take a strong stance on other countries’ theft of U.S. companies’ intellectual property. Innovation must be protected.
5. Offer prizes to industry for creating innovative solutions. This would not be a supplement or grant payment. Let business harness the brightest minds in the private sector to create solutions.
6. Maintain a strong military that can keep the sea lanes open, protect from acts of piracy and allow U.S. companies access to foreign markets and natural resources.
The time for Washington, DC, to move this country back on course is now.
Will, a retired Marine colonel and logistics specialist, is also an active member of MH&L’s Editorial Advisory Board.