Now What ?

Disclaimer: This is not a quantitative analysis, but rather an opinion piece reflecting the perceptions and opinions of the Sea-Intelligence management team, as expressed by the author.

Author: Bjørn Vang Jensen

It will end. One day, but not anytime soon, probably not this year - and nobody knows what the end will actually look like when it comes.

We are referring, of course, to what we believe can now justifiably be named the Global Transportation Crisis (GTC), and prudent purchasing and supply chain managers budget and plan accordingly.

For some, that will turn into boardroom-level battles, in which realism hopefully wins the day, and sadly, for some companies it will spell the end of the profitability of their entire business model, which will then need a re-think.

We deliberately refer to the subject as “Transportation” because, while it’s certainly stealing the headlines at the moment, this crisis is by no means restricted to container freight.

All freight modes are affected, and no matter where in the supply chain the crisis takes root, it will (indeed already does) have profound, complex, and expensive impacts on both customers and suppliers.

Nobody knows this better than carriers (of all modes), who have for years if not decades found themselves in the same situation, with huge CAPEX, uncertain forecasts, and a massive imbalance in supply and demand. All this set against the backdrop of unenforceable contracts, deregulation, and (some) customers who at best enjoyed a very casual relationship with the notion of loyalty.

To a large extent, carriers have delved into their toolboxes and grabbed their trusty Maslow’s Hammer (the one that makes every problem look like a nail), and thus we now see a return of the usual suspects: the GRI, the PSS, and all those other surcharges too numerous to mention, but which can be lumped together in a box labeled “WICGAW” (Whatever I Can Get Away With). And, for the first time in a long time, these are sticking.

The blank sailings, the (usually un-communicated) cargo rollings, and record-low ocean schedule reliability have likewise made life nearly impossible for any supply chain planner not named Harry Potter.

Mix that with a demand pattern that has shifted in nature and geographical spread, fires, groundings, congestion, a pandemic, bunker prices which are edging upwards, equipment shortage, and the inevitable knock-on effects on road, rail, warehousing, air cargo uplift, and port productivity, and we have a near perfect storm.

Speaking of which, the Pacific typhoon season just started…

Some carriers, now flush with cash, are ordering new tonnage, or even entering into long-term charters at record-high daily rates, a risky move given the lead-times of new-buildings and the uncertainty of the future, but to some extent also driven by regulatory requirements.

Others have gone on buying sprees, snapping up small competitors, or taking the leap towards becoming 3/4PLs, organically or through acquisitions. Not exactly a novel idea, nor one which has historically fared very well, as customers often (rightly) see this as simply a way for the carrier to erect further barriers-to-exit.

Even those who are arguably the Navy SEALs of hyper-complex, global, multimodal supply chain orchestration are buckling under the weight of the GTC. Here, we refer to the integrators (FedEx/TNT, UPS, DHL), who are seeing on-time delivery accuracy dive to numbers that would, just a year or so ago, have led to a highly unpleasant conversation with the customer, and probably financial penalties as well.

And this at the same time as Direct-to-Consumer (D2C) is becoming the New Black, as shippers try to trim as many middlemen out of the chain as they can.

If you want to paint an even grimmer picture, throw in the global semiconductor shortage, as well as rising steel prices, pent-up demand from Agriculture exporters, the list goes on.

So, to return to the headline, now what ?

We’ve previously written about the need to pick low-hanging fruit and given examples of where to go and hunt for it. Hopefully, you already have/are, because some of those doors are closing. Today, no quarter is given on detention and demurrage, and you can expect to pay list price for un-contracted volume.

This means that, to the extent you are going to try to rely on external factors to help you lower your costs, you have only two levers left to pull: your (non-transport) suppliers and your customers, and you’ll have to hit both of those wherever possible.

But the real value is in looking inward, finding and addressing the opportunity that always accompanies a crisis. We’re talking about systemic change here, not cutting a few headcounts or eliminating free coffee in the pantry.

And since this is patently a supply chain crisis, the area you need to focus on the most is, in our opinion, that Holy Grail of supply chain management: visibility.

Visibility at the granular level, but at the very least to the SKU and the ATP levels in the chain. A supply chain planner cannot do his or her job, and a manager cannot make appropriate decisions, without that level of granularity.

It is also highly desirable that the visibility platform be able to access sales forecast data, seasonality (historical and predicted), as well as any major planned changes in sourcing patterns.

Perhaps there are exceptions, such as a class of product where a company is sitting on months of inventory of a finished product, and one week’s delay more or less in the replenishment cycle is of lesser consequence. But even this presupposes that the SKU distribution in this inventory can match a certain shift in demand within the overall category. Different model, color, or accessories may all of a sudden become the latest craze, and your other inventory risks becoming next week’s “special offer”.

On the extreme side is the case where a lack of part number visibility ends up shutting down a factory. Depending on industry, this can cost from a mere hundreds of thousands to millions of dollars per day and is every supply chain manager’s worst nightmare.

And it doesn’t take much to make it happen. If the Ever Given had been stuck in Suez a week longer, many manufacturers would have been staring into that abyss. Black swan, you say ? Only a few weeks later, the Maersk Emerald nearly repeated the performance.

As they say, “it takes 1,200 parts to build a car, but it only takes one part to not build one”

This is not going to be an Excel exercise. You’ll need to harness the power of Big Data, AI, API-based integration, experience, and unwavering top management support. As an independent consulting house, it is not our place to recommend specific companies, but they are not hard to find.

There has never been a more opportune time to “sell” this type of project. We are happy to help you.


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