In this third week of March 2021, business media headlines concerning industry supply chains paint a clear picture of the market dynamics and business challenges that supply chain management teams continue to tackle and respond to.
On the global supply chain front, Bloomberg, the New York Times and The Wall Street Journal have featured eye-popping headlines:
‘I’ve Never Seen Anything Like This’: Chaos Strikes Global Shipping (The New York Times)
Consumer Demand Snaps Back. Factories Can’t Keep Up (The Wall Street Journal)
McKinsey Sees High Freight Costs Lingering (Bloomberg)
Everywhere You Look, the Global Supply Chain Is a Mess (The Wall Street Journal)
Chip and Ship Delays Fan Inflation Concerns (Bloomberg)
The story lines are quite familiar and include lots of businesses responding to new areas of product demand brought forward by the pandemic, not to mention efforts to replenish domestic stocks. Some observers point to a large “bullwhip effect” occurring that could eventually cause an oversupply. One report hints that whereas supply chains were the heroes of 2020, they may be “botching the recovery.” There is an observation that many manufacturers followed the playbook of recession response, cutting costs and preserving cash, being once again unprepared for the quick rebound in demand. Another once again points to over reliance a certain nation for key supply, especially when that region’s logistics capability becomes significantly hampered.
Then there are effects of winter weather and climate change, including the devastating ice storm and subsequent state-wide power failures that impacted the State of Texas for several days. Various petrochemical or semiconductor production facilities across Texas are now not expected to be back to normal operations for several more weeks.
Severe winter weather across Europe, newer strains of coronavirus infection rates, and the continued start-up of added customs paperwork burdens involving Brexit separation add to this region’s challenges.
The backdrop also includes availability of global vaccine supply and the administration of vaccines to broader numbers of people. While the U.S. appears to finally have a coordinated focus and ample supply ordered, many other regions including Europe have supply and logistics challenges to overcome. The added waves of coronavirus infection now precipitating the need for added lockdowns in France, Germany, Italy and other regions.
Transportation and Logistics
The continuing global demand and supply imbalance of affecting ocean container shipping continues to significantly delay export shipment times. U.S. West Coast ports remain backed-up as much as two to three weeks because of port congestion or labor shortages, considerably lengthening delivery expectations and frustrating many customers.
Added to this are concerns that existing high shipping rates and port congestion will potentially extending for the next two quarters, or possibly the remainder of this year. Highly experienced logistics and transportation industry executives continue indicating they have never witnessed such industry dynamics.
The Logistics Manager’s Index, a measure of U.S. logistics volume and price levels raised to a level of 71.4 percent in February. Transportation, warehousing and inventory cost indexes all hit their highest levels in more than two years.
And the there are the benefactors which Supply Chain Matters has previously pointed to, namely carriers who continue to figure out how metered management of overall capacity mixed with a condition of historic highs in shipping and coronavirus related surcharge rates.
The latest specific examples include:
Global ocean container line Hapag-Lloyd reporting a tripling of profit level in the final quarter of 2020, amounting to $1 billion. Once more, executives indicated that upwards of 70 percent of volume consisted of long or mid-term contract business and predicting “bigger increases through Q1” due to an explosion in spot and contract freight rates.
Global parcel carrier FedEx reporting a tripling of profitability coupled with a 23 percent total revenue increase in its latest quarter, exceeding analyst expectations. Exploding E-commerce volumes resulted in a 25 percent volume increase for the carrier’s Ground segment and over a 12 percent volume increase in its Express segment. Those two numbers are significant because the carrier has begun to integrate the two segments to streamline operations. All of this was accomplished amid the multi-day disruption of deliveries across Texas in February along with winter storms impacting the carrier’s main Memphis hub on several occasions. At one point during the last week in February, the carrier’s on-time rate reportedly slipped 76 percent.
Supply Chain Matters Perspectives
All the above is presented not so much to cast a doom on current and ongoing supply chain management team efforts but rather to help point out where learning, alignment and added focus will continue to occur over the coming weeks and months.
- Augmenting supply chain agility, response management and resiliency as critical agenda needs. Each industry and each business will have different prioritization of need and investment, and as we have stressed, business and functional alignment is essential.
- The ongoing significant increases in transport costs coupled with continued eroded service levels leading to difficult decisions as to whether product prices will need to be increased, or whether such increases can continue to be absorbed. Of significant concern is that of small and medium businesses which currently lack the financial liquidity to continue to absorb such costs.
- Adoption of advanced technology by carriers and other parties in either metering capacity or electively managing spot rates based on overall segment needs has implications for multi-industry supply chains. Investments in and broader end-to-end visibility across multiple tiers of the supply chain, and process synchronization among manufacturing, logistics and customer fulfillment processes has never been as important as they are right now.
Finally, whereas last year, supply chain capability garnered added senior management and respect, this year should be no different. Thus, is the critical importance of continued aligned thinking, definition and direction setting for business process decision making as well as added technology adoption.
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