Exclusive White Paper: Managing Inbound Supply Chains – Cost, Capacity & Delay Are The Supply Chain Manager’s “Nightmare”
The Covid-19 Pandemic which impacted global supply chains hard in February of 2020, has grown as on “steroids” as we approach the 2nd Quarter of 2021.
There is no professional logistics service provider, freight forwarder, NVOCC, Carriers, 3PL, customhouse broker, consultant, or any expert in the industry who would have anticipated what has happened in the past 12 months and likely to have a legacy well into the balance of this year.
Demand had impacted capacity and capacity has impacted cost. Ocean freight rates have doubled and in some trade lanes have tripled and air freight pricing has multiples of 4-8 times more than we witnessed towards the end of 2019.
Making this all worse is how long this crisis has developed with no specific end in sight.
Tied into capacity and cost are the logistics delays, doubling and tripling expected ETA’s.
This past year has been a “nightmare” for all supply chain managers who are looking for relief … when very little is in-sight.
The biggest influence can be observed on the Asian to North American market where the impact has been most disruptive.
In our Supply Chain Management Consulting Practice, we have been approached by hundreds of companies desperately seeking assistance in finding options and providing some relief. We will share some of our recommendations at the end of this article.
Over the 40+ years of our practice in the global supply chain, we have witnessed other times where craziness and disruptive behavior impacting freight markets. There have been at least 6 times from 1981 to 2020 where the supply chain has been disrupted in a major way.
Most professionals point to the poor management of the carriers, who have difficulty managing capacity, assets, and client’s supply chain needs when disruption is looming. While that is true to some level, there are numerous other influential areas that add to the crisis. The impact of Covid-19, greater global demand for PPE, expeditious replenishment of global inventory levels, and uncertainty in consumer and commercial spending, are but a few of the other contributing factors.
Also keep in mind, that in North America the entire domestic transportation market is also experiencing increased costs, capacity issues, and delays in providing timely, comprehensive, and cost-effective transportation services.
While we have all this “gloom and doom” in front of us, there is some light at the end of the tunnel. Here are some recommendations that we offer:
1. Recognize that in all the other times (of which we estimate that there were 6 events) of disruption in the global supply chain … in time … balance and normality eventually prevailed.
The issue in this Covid-19 Freight Dilemma … is when will we see normality? Many experts advise by April and May 2021.
Our best estimate is that while we may see some sunlight by May, supply chain executives should plan that the disruption will last till September.
Demand planning, freight purchasing, and contract negotiations would best be accomplished by anticipating freight and supply chain issues not being seriously resolved till the Fall of 2021.
2. As a supply chain executive, create a greater reach into alternative options for the acquisition of logistics services. Come out of your comfort zones, your traditional “go-to” providers, and open the doors to a larger web of players in the freight market.
3. Alternative options should include:
-Direct to Carriers
-Logistics Consulting Companies
-Freight Purchasing Groups and Associations
4. Friendly competitors also can present an option where you can combine your purchasing power and leverage your freight spend.
5. Evaluating your freight spend. Consider consolidating your freight with one company by putting “all your eggs in one basket” where you may achieve getting the best value for your dollar. However, when placing all your eggs in one basket, recognize the risk associated with that option and manage that basket diligently.
6. Hire very capable staff that can bring resources, contacts, and industry relationships that might prove beneficial.
7. Work with your suppliers who also may be able to provide lower-cost or more expedient freight solutions. It is their interest as well to make sure their customers are well-served and happy.
8. Work tightly with your demand planning teams to provide timely and comprehensive information flows, so they can better plan when placing manufacturing orders. Lead times may need to be doubled and tripled. This also means working more closely and proactively with your suppliers and vendors to enhance their performance in increasing capacity and on-time capability.
9. Consider where you distribute from. Consider the demographics of where your customers are. This may conclude you adding on or expanding the warehousing locations so you can meet clients’ needs less costly and timelier. The example is if your customer base is throughout the USA and you singularly distribute from one warehouse in Baltimore Maryland, what is the cost and time element to service a customer in Chicago and one in Los Angeles?
Additionally, if the freight is sourced from China, compare the time and cost to ship from Shenzhen to Baltimore to Shenzhen to Long Beach. The warehousing and distribution costs become part of your overall competitiveness. Any steps that can be taken to help offset and mitigate the impact of higher inbound freight costs can provide various levels of some relief.
10. Be open, honest, and transparent with all the partners in the supply chain, including your customers. Extoll these virtues and they will come back to you in spades.
Working with more integrity creates camaraderie, team efforts, affords a better understanding of common concerns, and allows better partnerships to form, which ultimately produces better outcomes for all parties to an international business trade or transaction.
The Covid-19 Pandemic has turned the world of international freight upside down. It has caused a lot of frustration, headaches, loss of markets and clients, and multiple areas of serious concern for everyone involved in managing all aspects of global supply chains.
There is no question that the challenges of 2020 and the legacy now in 2021 have become ground zero for supply chain managers, but there is light at the end of the tunnel. The above outlined ten recommendations have been time-tested, battle-worn, and seasoned successful concepts in managing the risks, lowering the costs, and allowing for better-managed logistics in global supply chains.
Thomas A. Cook is a 30 year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida. The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management. Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions. Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management. He can be reach at firstname.lastname@example.org or 516-359-6232.