Last week, we were reading a recent report produced by the Chartered Institute for Procurement and Supply (CIPS) in the U.K. indicating that its risk index reversed in Q4-2014 and reached a nine month high. According to this report:
“The world opened up for procurement managers in Q4 2014 with an abundance of cheap oil and gas making suppliers in far flung corners of the world instantly more competitive. Combined with low commodity prices in everything from gold in Ghana to soy beans in Brazil, manufacturers at the top of the global supply chain have grown the complexity and length of their supply chains whilst reducing their input costs.”
Now, there are multiple business and general media reports of the severe toll that is cascading from the continuing backlog of ships destined to U.S. west coast ports that cannot be unloaded and reloaded on a timely basis. The latest news this weekend is that President Obama has dispatched the U.S. Secretary of Labor, Tom Perez, to California in an attempt to broker an agreement.
Today, a Reuters syndicated report featured on Business Insider provides ample evidence of the rippling effects beyond retail focused supply chains. Honda Motor now indicates that it is slowing production at certain North America auto assembly plants because component parts in the replenishment pipeline are now impacting the production of this OEM’s Civic, CR-V and Accord models. Similarly, Fuji Heavy Industries, producers of Subaru cars indicates that it is already air freighting parts to U.S. factories through at least the end of this month.
An AP syndicated report featured on business network CNBC indicates that in addition to car parts, imported furniture, medical equipment, bathroom tiles, shoes and other goods are all impacted. On the export side, meat, produce and other agricultural foods are not moving to Asia destined markets and are in danger of spoilage.
No doubt, the cumulative impact across industry supply chains will be in the billions of dollars if the current labor dispute is not resolved quickly.
Further reported is that the port crisis is impacting available capacity and shipping rates for both sea and air freight, making it even more expensive to implement contingency shipping and logistics plans. Air freight capacity originating from China and the Asia-Pacific region was reduced in 2013-14 due to declining demand and increased costs. Thus, the current surge in contingency shipping demand is chasing limited supply, and no doubt, bigger more influential shippers will be garnered preferential services.
As is often the case with these types of multi-industry supply chain crisis, small and medium businesses will bear the bulk of the economic burden.
Within the U.S. itself, a current period of severe winter weather featuring unprecedented snowstorms and extreme cold weather have paralyzed the U.S. northeastern and Midwest regions and its economies, adding more economic burden.
Tomorrow (Tuesday), west coast dockworkers are supposed to return to work. All industry eyes are affixed on a speedy and final resolution of the current crisis. Amen to that!
Industry supply chain teams do not need to concern themselves with supply chain risk indices for this quarter and beyond. They will be off the charts and indeed, the perception of global supply chain risk will be at an all-time high.
Today, sensing and real-time awareness across the end-to-end global supply chain network as to where inventory resides and the daily condition of global transportation networks and contingency plans is far more important. The current crisis will continue to worsen before it gets better.
Longer-term, once the current U.S. west coast port labor contract is resolved, shipping industry interests had better get their acts together and figure out solutions to a number of current industry choke-points and structural deficiencies. Larger mega container ships will not address the needs of shippers for reliable and efficient logistics and transportation.
The notion of the flexibility and/or cost effectiveness of global supply chains has reached a critical crossroad.