Transportation providers who long for a surge in business had better be careful about what they wish for. According to one group of investment bankers, carriers might not be prepared for renewed customer demand.

"Congestion could come back," said William Hunter, managing director of Jefferies & Co., Inc. (www.jefferies.com) "I absolutely think that's the case. I think you'll see a real strain on the infrastructure."

Hunter was one of four panelists to offer Wall Street's view of the supply chain, at the annual conference of the Council of Supply Chain Management Professionals (www.cscmp.org) in Chicago. Their collective message: things are loosening up in the credit markets. Recovery appears to be on the way. But don't start celebrating yet.

Wall Street hasn't always paid close attention to the supply chain. The very concept seems to go against the market's obsession with short-term profits and today's share price. How is a supply chain executive supposed to take the long view of customer demand when the Street demands instant results, often driven by blind cost-cutting? But private equity specialist Paul D. Carbery, managing director of Frontenac Co. (www.frontenac.com), believes things are changing. Globalization, the credit crunch and new demands for customer service are causing top executives and their shareholders to view the supply chain as a means of driving real efficiencies in the organization. Said Carbery: "Supply chain is a critical investment consideration across a variety of industries."

Robert Hess, a partner in Newmark Knight Frank (www.newmarkkf.com), a real-estate services firm, agreed that supply chain offers unique opportunities for "top-line innovation." After all, the discipline covers just about every major topic on investors' minds today: managing risk, rationalizing capacity, maximizing working capital, shortening the cash conversion cycle, boosting quality and striking that delicate balance between supply and demand. In short, says Hess, it's all about "doing fewer things better."

Thomas E. Parro, president of Merk Capital Corp., cited the case of one company that freed up $350m in cash by reducing the number of its European distribution centers from 35 to just six. At the same time, it boosted inventory turns from two to greater than six. The focus, he said, was on improving the availability of product. But it didn't hurt that millions were saved in the process.

Investors want hard results, and that means coming up with strict key performance measures that track the progress of managerial efforts. Hess sees growing interest in that elusive goal of The Perfect Order (right product, right time, damage-free). The catch is that quality isn't free, at least in the short run, so companies need to invest in meaningful improvements in the supply chain. And all the while, Wall Street will be demanding quick results. Said Hess: "It's a really tough situation with management today."

So where's it all going? Hunter has seen early indications of improving conditions in the second half of this year. But most executives are still in a holding pattern. The priority of the moment is preservation of liquidity (translation: sitting on your cash), and refinancing of existing debt. (The latter issue throws a long shadow over prospects for near-term recovery in the corporate sector. According to Hunter, more than $350bn of speculative-grade loans and bonds are expected to come due this year and next. And if you thought the home-mortgage crisis was bad, wait until businesses start defaulting in droves on their high-risk commercial mortgages.) As a result, most executives don't anticipate top-line growth until the middle of 2010 at the earliest.

In the transportation sector, rail-freight volumes saw a rebound in July of this year, primarily due to an upswing in movements of coal. Rail executives expect demand to pick up in the fourth quarter, according to Hunter, "on the back of broader economic recovery." Some rails are starting to bring idled capacity back on line, to handle more than just coal. U.S. containerized import volumes were up 7 percent in August (although that level was still 17 percent lower than the same period of last year).

The big concern is whether transportation providers can handle a substantial recovery. It's only been five years since West Coast ports were swamped by containers flowing from Asia. A longshore labor stoppage, coupled with the fallout from a massive shift of manufacturing to China, brought freight movements to a near standstill, on the docks as well as inland. Hunter said carriers have done little since then to address the core problem; their temporary salvation was more the result of an overall drop in cargo volumes. So a return to gridlock is a real possibility.

The good news: companies appear to be having an easier time of securing the capital that is needed to grow. Investors are seeing clear signs of a thaw in the lending freeze. "I think there is substantial capital waiting to be deployed right now," said Carbery.

Hunter urged companies to move fast. "The bottom line is that the credit markets are back today for a solid company," he said, "[but] I don't know what the future's going to bring. I would walk out the door and get debt today, if you need capital."

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