Global and US Logistics is a Mess as We Head Into the Holiday Season
Manufacturers and retailers continue to reel over the logistics nightmare that is slowly unfolding across the global and US stage. Shipping containers (from Shanghai) to the West Coast—if you can find one—for the holiday season can now cost as much as $32K, an increase of over 400% in recent
years. And Walmart has in fact become its own ocean freight company, chartering vessels to avoid delays and reduce volatility across its supply chain.
But ocean freight challenges only tell part of the story. Labor shortages, infrastructure shortages (including shutdowns and bottlenecks) and even warehouse capacity in North America continue to constrain nearly all aspects of truckload, LTL, last mile and related supply chain transportation areas.
According to Supply Chain Quarterly, freight volumes hit a record in July, with DAT’s volume index rising over 100% to 222 from its baseline of 100 in 2015 (the index includes “dry van, refrigerated, and flatbed loads moved by truckload carriers, and is an indicator of commercial freight activity.”) From
a cost perspective, according to DAT, summer spot prices were $2.73 per mile, an increase of over 70 cents from previous years, “setting records for all three equipment types.” Even last mile delivery is a challenge, with 37.8% of last-mile delivery firms [suggesting that] finding qualified drivers to hire is
their biggest issue,” according to Freightwaves.
The same publication suggests that “transportation capacity remains on a downward trajectory while prices and utilization are rising “at an increasing rate” and sector indexes have seen “capacity contracting for 15 consecutive months.” Conversely, tender reject indexes have been rising at a “at a higher clip starting around the same time.” Warehousing capacity is facing similar constraints, with a lack of available labor being referenced as the primary challenge curtailing availability.
What can manufacturers and retailers do to address these challenges? Retail Dive recently quoted a number of industry executives including Erik Nordstrom, Nordstrom’s CEO. He recommends strategies such as pulling forward orders, expanding lead times and increasing delivery order frequency—as well as the worst-kept environmental secret of the retailing industry: “strategically [using]—airfreight for holiday” season.
Dollar Tree’s CEO, Mike Witynski, expects its regular ocean freight carriers will be able to “fulfill only 60-85% of our contractual commitments.” To combat this challenge, Witynski is “using dedicated space on chartered vessels for the first time, including one large vessel contracted for a 3-year term
which is scheduled to make its first voyage within weeks.” The firm is also “adding additional charters and alternative sources of supply, both domestic and international that do not rely on Trans-Pacific shipping,” expecting “some of this shift could become permanent.”
When we read these and other stories of CEOs facing logistics challenges that impact both the top and bottom line, a number of common themes and strategies emerge. First, plan ahead—at the management level. CEOs and CFOs should be aware of the mitigation approaches that supply chain
and procurement leaders are putting in place.
Next, firms should prepare to pay more (and be willing to do so) for insurance—not actual insurance, mind you, but insurance that buys forward inventory, visibility and capacity and mitigates against potential bottlenecks and cancellations. As part of this strategy, manufacturers should look to alternatives, including even developing—as Walmart does—their own fleet options. In the trucking industry, this could include not only owning capacity, but recruiting and training drivers as well, and offering incentives such as localized routes and weekends at home which may impact direct costs in
the short-term, but help keep employees who might otherwise leave over the long haul.
The famous Caddyshack quote of “Be the Ball” comes to mind. But rather than being the ball, be the transportation supply chain. Own it. Even literally if you must.