The Role of Transportation in Supply Chains and Business

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Like 1.6 trillion of which probably we have about 10% of that really budgeted to go toward this activity. This is a fascinating one. Natural disasters. If you look at the rate of increase in things like tornadoes, earthquakes, hurricanes, tsunamis. Is it me or is that or we read about that more than we know we really do. If you plot it over time these things are increasing. So from a supply chain standpoint you got to deal with that and transportation is one of the key links to getting a supply chain back up and going. So you just got to know that these are the kind of things you have to be prepared to deal with and then on the price of fuel, that's the other one I wanted to mention before we get encouraged here. I did an interview two weeks ago with a trade journal and they were asking me, Dr. Frizzell how should a company manage through a situation where one day the price of fuel is four dollars a gallon and the next week it's two dollars a gallon. Anybody got some suggestions? Maybe you can go back and do that interview for me. How do you deal with volatility? Hedging, but even hedging at this point if you've got gas at four dollars a gallon and the rest of the world is paying two, just in general how do you deal with volatility? The way you set up a supply chain network for gasoline that's four dollars a gallon versus two dollars a gallon, it's completely different. The way you set up a supply chain for inventory if the interest rates are zero and ten percent are very different. One of the themes that will come out is flexibility. How do you create a flexible supply chain? The other thing you have to do is in very short notice be able to study and understand the impact of this volatility. You've got to have models and people who understand them, running them continuously to know how to deal with these factors because everybody has to deal with this. People complain about volatility in oil prices. It's no different for FedEx than it is for UPS than it is for somebody else. Everybody lives in that same boat so to speak. The game is can you deal with it better than your competition and that is having the modeling capability, people who understand the models and having flexibility built into the supply chain. So if you wanted to know why am I so stressed, these are the reasons. There's one other one that relates to security. (13:48 - 20:39) If you look at where the oil passes in the world, a majority of it at this point passes through these narrow little straits. It's hard to get through and the governments on the sides of those straits are some of the most volatile in the whole world. So I can't imagine a day where we're going to see 50 cent a gallon gasoline again. Not that long ago $2 a gallon gasoline would have seemed really high. Remember that? So is it stressful being a transportation manager? Absolutely. And it used to be if you got a job in transportation they might as well have handed you either a pink slip or a Polex watch because you were kind of headed out the door.

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