What's ahead in '16?

The highway bill debate is behind us, but the logistics/supply chain community will still face challenges throughout the year. Here's what to watch for.

By Clifford F. Lynch

Each January for the past few years, I've tried to predict what's in store for us in the coming year. Sometimes, I've been right; other times, not so much. For example, I really thought this was the year for the Dallas Cowboys, but as we now know, that just didn't pan out.

As for what the future holds for the world of logistics and supply chain management, opinions are mixed. Some say rates will go up; others say they'll drop. Some see a severe capacity crunch taking shape; others do not. As important as these matters are, they are not the only challenges facing logisticians. I believe three other developments that are now taking shape could bring about fundamental changes in the way we conduct our supply chain business. They are as follows:

• Fuel taxes and infrastructure. The big news is that we finally have a long-term highway bill, and members of Congress are patting themselves on the back. While the legislation was much needed and long overdue, it is also flawed in that it lacks a sound funding mechanism. For example, about 10 percent of the money is subject to annual appropriations, and some of it is coming from unusual sources, such as savings from turning IRS collections over to private firms ($2.4 billion). Already, some states are saying that the approved funding is insufficient and that they will move ahead with plans for supplemental funding sources. I believe 2016 will bring us higher fuel taxes in many states, as they try to find ways to finance planned improvements.
• LSP market consolidation. The logistics service provider (LSP) industry will continue to grow, and I see further merger and acquisition (M&A) activity ahead. As investment bankers become more involved in the industry, they're bringing a "bigger is better" mentality to the marketplace. History has proved that this is not necessarily true, particularly in the LSP arena. Nonetheless, I think we can expect to see more consolidation activity this year.
• The Amazon effect. To say that Amazon will have an impact in 2016 is a blinding glimpse of the obvious, but it's difficult to predict what it might do next. Apparently, it has begun to fly products around the country in four leased 767 cargo planes, dipping its toes in the FedEx and UPS waters. Plus, it announced in early December a new fleet of Amazon-branded trailers for moving goods among the e-tailer's various DCs. Many already view Amazon as an LSP rather than a distributor, so why not provide its own transportation?

Amazon's push to same-day delivery is putting enormous pressure on its retailer competitors, sparking some rather creative responses. Already we see Uber-type deliveries being made on bicycles as well as in 1990 Toyotas and any other vehicles individuals can put their hands on. (I believe that drones are fun and will be useful in some industries, but I don't see package delivery as their highest and best use.) I do not believe that retailers can continue to be efficient making deliveries from a limited warehouse network, store backrooms, and other patchwork operations.

I predict we will see two Amazon-driven developments in the retail delivery arena—and probably soon. The first will be a growth in basic courier services, with deliveries made by responsible, properly insured, and efficient companies. Their efficiency will be enhanced by already available, but rapidly improving, technology for routing, pricing, and so on.

Second, I believe we will see a major logistics service provider step up to compete with Amazon on behalf of its retail competitors. I think it's only a question of time until someone takes Amazon on, specializing in rapid, efficient deliveries, similar to what Genco did with reverse logistics several years ago.

Overshadowing all this is our increasing concern for the well-being of our businesses and our employees, and I think it is safe to say that our lives are going to be changed considerably for the foreseeable future. Notwithstanding this, my very best wishes for a happy, healthy, and prosperous 2016.