The impact of the World Trade Center disaster hits you as soon as you step out of the subway car at the City Hall/Brooklyn Bridge stop in lower Manhattan. An acrid odor, like that of burning rubber, is the first hint that all is not well. Walking along the ordinarily pristine section of Broadway that parallels the site of the former twin towers, you can see dust everywhere. Not only does dust completely cover nearby skyscrapers, but it can also be seen up to an inch thick in the display cases of local merchants.
Dust is only a minor legacy of a catastrophe so vast that even now, two months later, companies have barely begun to understand its effect on their businesses. Aside from taking thousands of lives, destroying an extremely valuable piece of lower Manhattan and a vital chunk of the Pentagon, and delivering a huge blow to an already shaky economy, the terrorist attacks of Sept. 11 have had logistics professionals all over the world scrambling to make sense of the tragedy and wondering what’s next.
Shipping has clearly been affected by the devastation. There have been reports of 16-mile backups at the U.S.-Canada border. Before the attacks, frequent border crossers could go back and forth without so much as a wave hello to customs officials. At that time, the U.S. Customs Service was operating at the lowest alert status, level 4, described as normal operations without specific threat advisories.
Now the Customs Service has elevated its state of alert to level 1, or sustained anti-terrorism operations. “This is our highest state of alert, requiring the maximum level of examination of passengers, cargo, and conveyances entering our country,” acting U. S. Customs Service commissioner Charles W. Winwood said in a statement. “We are questioning more people, and looking at more goods, than ever before.”
As trade becomes more global, heightened security may pose a challenge to companies as they try to move goods efficiently across borders. Roger Majak, assistant secretary of commerce in the Clinton Administration from 1997 to 2001, was responsible for trade restrictions relating to national security. He recently attended a meeting sponsored by the U.S. Commerce Department for companies heavily involved in international trade. “There is some possibility that trade restrictions will be expanded,” says Majak, now global compliance advisor to San Carlos, CA-based software provider Open Harbor. “In their statements, several of the government officials hinted at that. Some companies have already started to review their domestic sales as well as their international sales because there’s now the possibility that what looks like a domestic sale could in fact be going to a terrorist who is inside the United States.”
Nevertheless, Majak adds, “global trade is not an option, it’s an absolute necessity.” Even in times of crisis such as war, he points out, governments are careful not to restrict trade more than they have to, and businesses will find ways to comply with stricter guidelines instead of walking away from international ventures.
However, some companies fear that pending legislation to renew the U.S. export control system could, if passed under the present circumstances, pose restrictions that “might go too far,” says Majak.
Some retailers felt the fallout from the Sept. 11 attacks immediately. At Cheyenne, WY-based Sierra Trading Post, catalog sales plummeted by half and stayed flat long after, according to director of fulfillment Robin Jahnke.
“We dropped our volume 35%-40%,” Jahnke says.“We’d been accustomed to running well over last year all this year.”
Although Sierra Trading Post’s inbound receiving did not feel the backlash, due in part to a relatively light receiving period, outbound shipping went through many changes.
“Because the USPS wasn’t able to fly Priority Mail, we told our customers we didn’t recommend that service, we recommended using something else,” says Jahnke. “I would’ve thought they would have moved to what we call expedited ground, but they haven’t. All the volume has moved to UPS. The percentage has stayed the same with R.R. Donnelley, my zone-skipping carrier, but we got a huge jump at UPS.” Sierra Trading Post canceled the last two travel catalogs of 2001.
The terrorist attacks affected both orders and shipping at Burlington, VT-based Gardener’s Supply Company, according to operations director Irwin Langer.
“We’re seeing effects in regards to delays at borders,” says Langer. The company’s imports had been lagging even before the disaster because of the ‘mad cow’ disease scare in England. “We were receiving a lot of delays on inbound materials from Europe too. Because we’re a gardening business, a lot of things are classified as agricultural tools.”
Langer adds although business has fallen off universally since the attacks, timely delivery of products to customers will resume as companies begin to recover.
Major changes in the channels through which people shop are unlikely, Langer says. He expects consumers to continue buying from mail-order catalogs as well as online or brick-and-mortar stores — barring further calamities.
“If we start getting into situations — and again it’s degrees of severity — where oil gets cut off and gas becomes more expensive, hopefully people will turn to catalogs as being a more cost-effective way to take care of their material needs,” Langer says. “Aside from that, I think that mail-order buyers are predisposed to purchase that way and those that need to touch and feel, or want a more instant gratification of walking out with [products] instantly, will continue to buy retail.”
Business at Internet grocer Peapod, based in Skokie, IL, suffered some damage after the Sept. 11 attacks, says operations director Kevin Woolcott. “We felt the fallout from this devastation on the first day because we do service the greater Washington, DC area,” Woolcott says. “We did have drivers delivering in that area who were obviously caught up in some of the traffic jams and road closures, and we did have to bring quite a few orders back that were undelivered.”
Woolcott says that Peapod canceled its delivery operations for Sept. 12 because of the uncertainty of the situation. Most of Peapod’s produce is flown in from overseas, and because of air travel restrictions and cutbacks in international flights, produce deliveries were disrupted.
Surprisingly, Peapod did not see much of a change in customer orders other than a drop immediately after the assault. Woolcott attributes the continuing demand to customers’ need to buy items to stockpile their homes in response to a crisis. Overall, Woolcott says, Peapod’s business is getting back to normal.
None of Peapod’s customers complained about the delivery delays that the crisis caused. “I know our customers at Peapod were very understanding of the issues we were faced with,” Woolcott says. “This is a national tragedy that everybody is united behind, and it reminds them what is important in life. I just don’t think that a whole lot of people are going to be too concerned about whether they got it the next day or a few days delayed because of the situation.”
As logistics managers cope with tighter security protocols, they must also figure out how to pay the inevitably higher costs of intensive searches of packages and the human resources necessary to implement those searches.
“I think that it all depends on how long they stay with these stricter security measures,” says Woolcott. “It’s only natural that the consumer will end up picking up some of that cost. In many cases, as with so many of the companies that are not profitable yet, [merchants] cannot absorb any additional cost in shipping and handling.”
Woolcott notes that although Peapod will continue its project to implement a new warehouse management system, most companies will put a moratorium on large-scale technology investments unless they are already in the works or vital to ongoing business operations.
Not every industry has been affected negatively since the terrorist offensive. Austin, TX-based Dell Computer Corp. has experienced a surge in orders to replace damaged and destroyed computer hardware in both New York and Washington, DC.
Dell spokesman Matt Boucher says that Dell contacted organizations damaged in the attacks to offer humanitarian help and supply badly needed IT hardware, including desktop and laptop systems, servers, and storage area networks. Dell did not do any substantial step-up in production, so it had to prioritize who needed computer hardware the most. First on the list, says Boucher, were “affected government organizations like the Army and the Air Force and whoever else had to have systems replaced in that section of the Pentagon, as well as government organizations doing any sort of military buildup or any kind of law enforcement response.”
He adds that health care organizations providing care to victims of the tragedy were second in line; various hospitals needed computers to collect all of the pertinent data from the incident. Next on the list were numerous law firms, financial services, and other related companies, some of which were completely decimated.
“We did have one sort of expediting team in the factory — all of the orders went through them and they worked with the people on the factory floor to get those through the system,” says Boucher. “We were able to turn things around very quickly for those affected customers. In some cases, we were able to put systems on trucks 24 hours after we received an order.”
Dell relied on ground transportation immediately after the tragedy and never had any major supply problems, according to Boucher.
The computer giant also seems to be bucking the downward trend in profitability in the industry. Gateway, Inc. and Compaq Computer Corp. have issued third-quarter earnings warnings, both retailers partly blaming disruptions caused by the Sept. 11 attacks. However, Dell reports that its third-quarter earnings will be on target. If anything, the firm’s operations have picked up speed in the wake of the attacks. “Certainly, we’ve seen some orders that have resulted from this,” says Boucher. “In terms of overall demand, whether this is a short-term or a long-term thing, I just don’t think we know the answer to that.”
Steve Holmes, spokesman for UPS, says his company was able to adapt quickly to the grounding of flights following the attacks. “Our air system was down, that’s true, but we were able to flow our air packages into our ground system,” he says. “We got any backlog, which actually was pretty small, delivered on [that] Friday.”
UPS is now operating normally, Holmes says, adding that any changes to the business will likely be concentrated in the global arena as UPS makes special efforts to help customers cope with international regulations.
Holmes did not specifically say that UPS rates will go up as a result of security-related expenses, but he was clear in stating that UPS charges are set in accordance with the costs of doing business. For most companies, implementing heightened security measures will boost those costs.
Three for the road
John L. Barnes, III, an analyst with Frankfurt, Germany-based Deutsche Banc Alex. Brown, outlines three steps companies can take to deal with a crisis of the magnitude of the Sept. 11 disaster. Barnes covers logistics firms.
“The key thing is that you have to examine it on three fronts,” he says. “I think the first front is that you have to have access to just about every form of transportation involved, and that way, if you get a major disruption in some component in your supply chain, in the transportation function, you can alter it. You can, say, instead of by air, do it by ground.”
Second, he says, companies must go through their books and do the cost-benefit analysis of carrying an extra day of inventory versus what it costs to start and stop a production line every time there is a disruption or a spike in the system. What merchants will find, according to Barnes, is that the cost of starting and stopping a production line outweighs the cost of carrying an extra day of inventory just to make it through a crisis.
Last, Barnes counsels companies to take a look at global sourcing of raw materials. “We’re getting most everything we get in the electronics industry out of Southeast Asia. You need to start taking a look at sourcing it closer to home, and that way, if there is a disruption and you can’t get it by air freight into North America, then at least you can get it by ground from Phoenix, AZ, to Houston, TX, or wherever it is.”
The effects of the Sept. 11 attacks continue to disrupt all industries. The same logistics professionals who responded so quickly to the immediate crisis are now left to strategize about how to continue once the dust has settled.
David Pluviose is assistant editor of Operations & Fulfillment.
Return of the World Trade Center?
New York has lost more than thousands of lives and hundreds of thousands of jobs. A total of 27 million sq. ft. of office space has gone, according to Robert VonAncken, executive managing director of New York City-based Landauer Realty Group. Of that total, 15 million sq. ft. was completely destroyed and 12 million sq. ft. damaged.
“If you divide that 27 million by what would be on average 200 square feet per person, you have 130,000 people who are not coming back to their facilities. I think that retail in the surrounding area will be severely impacted,” VonAncken says.
Landauer Realty Group has provided about 1,500 sq. ft. of office space to the Real Estate Board, which has set up a hotline staffed by 20 volunteers. Landauer set up the Real Estate Board with phones and computers to aid in the disaster relief effort.
“They are fielding calls from various small businesses and placing those small businesses with landlords, and helping the small businesses negotiate a deal on a temporary basis so they can move into these facilities immediately,” VonAncken says.
He notes that local warehouse inventory was declining rapidly before the Sept. 11 assault. Until now, demand for new warehouse space languished because existing inventories were sufficient, but that could change in a few months.
“When things stabilize a little bit more, you’ll see that there will be a rebuilding program and a need for all types of products, and there will be a need for warehousing in the area surrounding New York City,” VonAncken says.
He adds that rebuilding the World Trade Center would create tremendous warehousing and logistics needs. “It’s going to be a huge, huge project, it’s going to create all kinds of jobs, and it’s going to create a need for all kinds of products to be brought into the city and stored elsewhere because you can’t store everything on the job site. You need tremendous warehousing capabilities to bring this merchandise in.”
John Deere Pitches In
Logistics took center stage early on in disaster relief efforts because of the large volume of material needed and the lack of facilities and services to receive, store, and move equipment and supplies. One of the companies leading the charge with logistics assistance was Moline, IL-based John Deere Worldwide Logistics. According to logistics manager Ward Larson, John Deere is collecting information from people and companies that have services to offer, putting the information into a database, and helping Red Cross workers find what they need.
Immediately following the attacks, John Deere factories in Williamsburg, VA, and Welland, Ontario, along with suppliers and transportation providers, built, equipped, and delivered 10 Gator™ utility vehicles to the Pentagon disaster site and 19 utility vehicles to the World Trade Center site. In addition, John Deere and its dealers and suppliers provided utility tractors, loaders, excavators, generators, and other equipment.
Larson says that after the Sept. 11 disaster, companies in the U.S. and worldwide began trying to help. The Red Cross and other agencies working at the disaster site in lower Manhattan needed the supplies offered, but getting the items to the site was a challenge.
“The response has been overwhelming. We have more than 300 companies and individuals who have contacted us to offer help. At the start, they needed to move some computers, and we arranged for a couple of carriers for that, but now we’re just giving the information to the Red Cross and helping them contact people,” Larson says.