Riverside Logistics

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What Logistics issues will have the biggest impact on you in 2023?

This year in Logistics could turn out to be a tale of two cities, “What you know” versus “What you don’t know”. There’s a lot of uncertainty about the economy and what’s happening on the world’s stage.

We do know that the Logistics Industry has had to evolve over the last couple years and 2023 will be no different as we move into an uncertain economy and the threat of recession. Your (logistics) focus should be on developing resilience, and reliability in your supply chain. COVID-19 was the test and it forced us all to adopt new business models and outlooks.

Here are some things that can impact your individual supply chain.

Merger and acquisition activity- Logistics companies grew fast and furiously during the Pandemic. This rapid growth gained a lot of attention from private equity firms looking to invest in fast-growing firms. Look for more of the same in 2023.

Expanded offerings- A key driver of change is how expectations of customers have evolved. This has caused Logistics companies to believe that their customers want a broader set of services. This can happen either by extending services portfolios (deep), or by expanding existing services across geographies, industries, or modes (wide). There will be continued emphasis by Logistics companies to go both “deep” and “wide” in 2023 to meet customer demands and needs.

Normal carrier supply cycles- During the pandemic, the cycles for transporting a load were unpredictable. You should expect a return to normal cycles in 2023.  With stable capacity brokers and shippers can become more selective in matching carriers to loads.

Technology as a key driver- Shippers turned to technology with logistics partners in 2022. 2023 requires more of the same. With a TMS (Transportation Management System), a company can handle their freight more effectively to meet customer’s demands for shorter delivery times. Technology makes it possible to automate processes like paying drivers faster, that used to be handled manually (on paper). This frees the labor pool to focus on more value-added projects. Logistics industries are more automated, and less manually intensive. The industry was traditionally an “old school sector” with lots of paper driven processes. Now, it has been pushed into the digital age by a mix of factors, including customer demand, labor shortages and the need to be able to do more with less.

Sustainability- Shippers are dealing with policy changes in 2023 and a growing interest related to environmental, social and governance (ESG) standards. Retailers have made strong ESG commitments in upcoming years. Increasing environmental regulations and consumer pressures to bring down pollution and greenhouse emissions are forcing the logistics industry to reconfigure and innovate to become “green”. It can also raise costs.

Help Wanted and Needed – Companies are continually required to come up with new ways to attract, hire and retain valuable human resources. Warehouses struggle to keep positions filled and the ongoing driver shortage has the transportation sector feeling similar pain. This will continue unabated in 2023.

Resiliency- Companies will (and should) focus more on building networks that can withstand disruption. Supply Chains face disruptive events every day, these events can add up to consequences for and within the organization. Logistics and supply chains will continue to face countless and unpredictable disruptions in 2023, including the economy, weather events, and geopolitical issues. You must try and build a network that can deal effectively with disruptions.

Reliable Logistics Partners- More companies learned the value of having reliable logistics partners during the Pandemic. These relationships can go a long way to help companies navigate the ever-changing transportation environment.

Digital data and visibility- Digitization prepared companies for mining data. This will facilitate intelligent decision-making. Data analytics provides visibility to customers. This is one of the biggest challenges for shippers today. It’s difficult to know what’s going on in the chain. By digitizing supply chain process and collecting the data through the life of a load, shippers have (full) visibility on their shipment. In 2023, digitization, data, and visibility will become more prevalent, and increasingly faster and accurate.

Reshoring/nearshoring- Reshoring/Nearshoring emphasis has increased over the past couple of years. Driven by tension between the US and China, spikes in shipping costs, the pandemic’s effects on global supply chains, and concerns about sustainability companies have relocated from Asia to Mexico/US to lower transit times and reduce risk. Proximity allows goods to be transported (more often) over the road at competitive prices. This emphasis will continue driven by more “Black Swan” events.

Diesel prices- The price of US diesel fuel rose significantly (roughly 55%) in the first half of 2022. The Russia-Ukraine conflict was a chief cause. In addition, International rule IMO 2020, with Sulphur content restrictions, will take further effect and businesses moving cargo will have to find ways to adapt to this rule as it raises prices for fuel.

Capacity- 2023 probably won’t bring an increase in the supply of transportation capacity. As insurance, fuel and maintenance costs continue to rise, and demand falters, supply may shrink as smaller carriers struggle, forcing them to either merge or quit operations.

Accelerating inflation- Interest rate hikes, enacted to slow consumer spending and inflation, have started to depress the U.S. economy. Transport companies must navigate this moderation in demand. Going forward, the struggles will continue as we enter a possible recession in 2023.

Ongoing Semi-Truck Shortage  

A change in the composition of the national labor market was felt all over the world. This pressure puts semi-truck manufacturers behind the curve. The U.S. transportation industry requires roughly 200,000 new vehicles a year to maintain an adequate age of its fleet. During the height of the Pandemic, truck manufacturers missed these replacement levels, forcing trucking companies to use older vehicles. This year, manufacturers are on track to meet the transportation industry’s replacement demands. However, the current backlog of semi-truck orders is the largest ever. Carriers typically expand their fleet sizes when spot rates are high. They couldn’t do that this year.

Consumer Spending- The way people spend their money drives the transportation world. Consumer spending patterns are starting to shift. When the pandemic hit, consumer purchases of durable goods spiked. E-Commerce transactions set all-time highs. This shift required a massive response from trucking companies and their drivers. Recently, with rising inflation and no pandemic restrictions, consumer buying habits have shifted again. Now consumers are spending less money on durable products which require trucking and more on services/experiences which don’t.

Spot rates– Freight demand has outpaced the supply of trucks. This trend will probably continue into 2023 as consumers paying with credit at an accelerated rate feel the effects of inflation. It’s likely that consumer spending will slow across the board in 2023, decreasing the transportation industry’s workload and keeping spot prices low.

Managing Logistics in 2023

Based on the above topics there will be plenty of challenges to overcome in 2023. It won’t be easy, but it might present a good opportunity to make improvements and calibrate your supply chain for the future. To navigate 2023 successfully try to keep the following in mind:

  1. Keep your transportation providers fully informed
  2. Prioritize flexibility when planning your shipments
  3. Work with a diverse group of freight carriers and 3PL’s

A good supply chain partner like Riverside Logistics can really help you meet the challenges in 2023. Pleased call us at 804-474-7700 Option #4 and ask for Jim Durfee, VP Business Transformation. We’re happy to look into your network and guide you through the potential 2023 logistics turmoil.

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WHERE IS THE SUPPLY CHAIN WHEN YOU NEED IT?

According to most pundits on TV, and in the news journals, just about everywhere for that matter, all you hear is that there is a recession coming. OK, so there’s a recession coming, how bad it will be is anyone’s guess. The important question for people involved with the Supply Chain, is “what will it mean to my Logistics infrastructure?”

I’ll share some thoughts on the answer to that question.

Let’s set-the-table so to speak, and list conditions as they now stand in the current logistics environment.

First, warehouse space is very tight all over in general. If you consider just the Richmond, Virginia market, its occupancy rate approaches more than 98%. The percentages may vary by market but in general, space is extremely tight. Even new warehouse space that is coming on-line over the next 18 months is already spoken for. When talking to our clients they say their inventory levels are extremely high. For some of them that’s a good thing in that it allows them to respond to demand faster than their competitors. However, on the downside, it also ties up a lot of cash. Lead times for product are starting to shorten but are still longer than normal. All this adds up to higher levels of space utilization.

In addition to space constraints the costs inside the box have escalated. Labor costs soared due to the lack of available workers. Money talks, and warehousemen will migrate to the money. If your competition is paying 10 cents more an hour, you’re seriously at risk of losing workers. When you lose a worker, then you not only have to replace them with another one, but you also must train and then do your best to retain them as well.  That takes both time and money.

As a 3PL demand for our services have never been higher. Warehouse space and labor is in short supply, but we focus on solutions for our clients and short term it will be challenging but our tools, experience and network tell us that solutions as time goes by are available. A deep understanding of your clients, a clear mission and open communication can lead to success.  The more insight and lead time you give us,  the more a 3PL can help you. Our consulting services may provide unique solutions that only a 3PL can offer.

Second, transportation supply. Trucking capacity was extremely tight and increasingly more expensive during the first half of 2022. That started to change during the second half of the year. Instead of carriers having too much business to handle and never providing capacity when we called them, they are now calling us trying to find loads. The tide has turned. Trucks are in greater supply. That’s a good sign. Service levels are improving, rates are stabilizing and, in some cases, starting to come down.

The big three factors in trucking costs are equipment, labor, and fuel. The first two, labor and equipment, are still at historical highs. Fuel prices have moderated. Since fuel is a major factor in freight costs, that is a good thing. However, new trailers have gone from ~30k each to ~55K each and lead times to get them are still over a year long. Labor is requiring more in wages. You don’t give back what you’ve already given. Please remember that there is still a shortage of truck drivers in the USA. That means the carriers must attract drivers using higher wages, benefits and better working conditions to keep and manage their workforces. We see that continuing in 2023.

The forces affecting Logistics costs and supply chain performance are counterbalancing each other. Space is tighter than normal, but transport is more readily available. A recession is looming. Meaning what? High costs for storage and handling, stable costs for transportation, moderate service level improvements.

It’s important to remember two things about this. One, the environment is fluid and can change dramatically if something unexpected happens as in a  “Black Swan event”. Whatever I tell you today, is a best guess based on what I know …. today. Second, no matter what happens, if you plan and try to insulate yourself from supply chain and logistics shocks, you’ll be better off than if you don’t and do nothing.

What should you do to manage your logistics to plan for the next 12 months? Here are some suggestions:

  1. I would highly recommend that you find a 3PL that understands the markets for Transportation and Warehousing. Then take the time to develop a good working relationship with them (the 3PL). Use the 3PL’s market knowledge to your advantage. Remember that 3PL’s typically deal with a variety of clients, transport providers, and warehouses. This allows them to provide insight into where markets for transport and warehousing are directionally moving. They probably see these movements a lot sooner than you will and can provide early warning capabilities to you. 3PL’s, if they’re tied into their clients, can get a glimpse from a lot of different directions in different markets, as to what is influencing clients supply chains. The 3PL’s see how the clients handle these influencers, and basically can tell you what is working and what isn’t. This information is invaluable and if shared, can allow you to make better decisions regarding your own supply chain. Based on our experience sharing good intel about the supply chain with clients is beneficial to all parties.3PL
  2. Take advantage of the transportation marketplace by Bidding your business. If you do this utilizing a 3PL, it will afford you an opportunity to get the benefit of their market tools as well as their experience negotiating with carriers. This can provide another competitive advantage to your business as opposed to doing it yourself. If you bid your business and get client specific pricing that holds for a year, then you can make better long term pricing decisions.
  3. If you have storage needs, the market says space is at a premium. Make sure you fully understand your needs in terms of timeframe, space, handling, flow-thru etc. The better your information is the better or more realistic your cost of doing business will be. Don’t be afraid to lock in space for a longer term than usual. Unless you have a crystal ball that no one else has, it is in your best interest to lock in your costs for the long term so you can plan better. This will ensure your warehousing needs are met for a longer period of time. Moving from one space to another is expensive. Also, a 3PL can help here in a couple of ways. 3PL’s can expand with your space requirements. If they understand your type of business, they can help you navigate the supply chain as a partner and provide synergies that you can’t find and use on your own.

If I were to boil the answers down to a few, I would tell you to plan for and attack your logistics issues rather than let them attack you. Even in a dynamic environment such as now, planning will help you a lot in managing logistics. In addition, partner with a 3PL to help you provide resources and expertise to meet the demands of the logistics marketplace. If you do this, you’ll be happy that you did.

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If I were making decisions regarding my Company’s Logistics functions and my Supply Chain, what would I do now?

The current logistics environment and the status of the Supply Chain are very confusing right now….for everyone. One minute capacity to move shipments is scarce and expensive, the next moment its loose (available) and less expensive. Container rates are thru the roof, then they’re not. Warehousing space is unobtainable, a lot more expensive, and the options are fewer and far between.

Let’s first look at some of the key drivers affecting the Supply Chain and the Logistics community.

  1. Cost of Capital

When money gets more expensive and harder to get investment goes down. This means carriers begin to extend their equipment life cycles, cut back on new equipment investment, and generally hold off on growth plans. The net-net of this is that your access to capacity, warehousing and such becomes harder and more expensive.

  1. Labor Resources

Logistics as an industry is a touch and feel type of environment. Most of Logistics Labor  consists of drivers and warehouse workers and both must be physically on the job to perform their work. In addition, even pre-pandemic, both were in short supply. Now that demand for these roles has increased back to pre-pandemic levels, they are still a scarce resource. This translates in two ways. First it causes upward pressure on labor rates to keep workers from leaving. Second, it puts downward pressure on Logistics Providers ability to grow their operations to meet demand.

  1. Inventory Levels

Due to the pandemic, increases in demand and the length of the supply cycle inventory levels were increased dramatically. All the inventory had to go somewhere so it sucked up available warehouse space, containers, and trailers. Turns out the demand for goods tapered faster than anticipated and now inventories are too high and sitting too long. This means that space is at a premium, containers and trailers used to store product are not achieving good utilization rates and combined, these factors raise costs and lower service levels throughout the supply chain.

To encapsulate the main two sides of the equation, Supply is too few and Demand is too high. The Supply Chain functions most effectively when these two factors are closely balanced. Conversely. If they get out of balance,  life in the Supply Chain is “difficult”. Like the last 2 years.

What I would do if I were you…run and hide. No, seriously I’d wait it out. I’d use the information I have at hand to build a plan on what you want to achieve with your supply chain and how you think that can be accomplished. The market is in transition right now. Rates are moderating, truck capacity is loosening, international volumes are dropping as are international container rates. However, a potential railroad strike is looming which could at the very least result in rail delays, which in turn become truck and container delays.

Now let’s talk about relationships. As a 3PL we (Riverside Logistics) get to see and interact with a lot of different supply chains handling a lot of different products and running on different criteria for execution. This means we have a pretty good thumb on the pulse of the supply chain. The overall Supply Chain can swing one way or the other, dramatically, and quickly. You must be nimble and have options available to you to handle these machinations. One very capable way to prepare for Supply Chain shock is to partner with a 3PL and to build a relationship of trust with that 3PL. When you do that, you get the benefit of their expertise as well as insight into the logistics markets. This can be a powerful tool for you to use when competing in the marketplace. 3PL’s usually have access to a substantial portfolio of carriers and modes. They know how and when to use them to execute competitively. That’s their business. They also in many cases have knowledge and capability in the warehousing space. They can tell you what market occupancy rates are like in the markets they play in and can help you find and manage space that meets your needs in the markets they serve.

So, lets recap. Right now, there are a substantial number of headwinds and tailwinds impacting the Supply Chain. To sort them all out will take some time. It behooves a company to sit back and let the leaves fall out of the trees a little more so you can see what’s coming next. It is also a good idea to try and build a strong working relationship with a 3PL to let them assist you by applying their expertise in the logistics markets.

It’s a little scary in the supply chain right now. If you try and “Time The Market” you’ll probably fail. Just like with the stock market, timing is not a good idea. Taking a long view is a better strategy and one that should pay dividends in the long run. Hope this advice helps set you on a path that provides your company with a good competitive posture in todays supply chain.

 

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BUILDING A RESILIENT SUPPLY CHAIN

Best advice I can give is to Start from the bottom.

In today’s Logistics environment, building a resilient supply chain is more critical than ever. No sure way exists to overcome all the risks that comes your way. Things like the Ukrainian war and the lingering effects of the pandemic have had severe impact on just about everyone’s supply chains. Product lead times are double or triple what they used to be, and that’s if you can get the products at all. The cost of freight, raw materials, labor and finished goods have skyrocketed. Both the International and domestic US transportation systems are a mess. There are containers sitting that can’t unload, there are warehouse shipments loads that can’t be picked up, shipments are taking twice as long to deliver than before, there is a lack of warehouse capacity to store goods, and overall prices for freight, fuel, labor, and just about everything else have gone up dramatically.

Considering this decidedly negative environment, and the uncertainty of how long current conditions will last, what can you do to make your Supply Chain more resilient. Here are some suggestions.

  1. Increase your base of supply. Go from a plus 1 supplier base to a plus 3 base. Extend the geographic base as well. Keep one area from controlling and hurting your supply chain.
  2. Make and get commitments from your transportation providers to provide enough equipment to meet your extended needs. Contract for this capacity and take a “now is better than later” attitude.
  3. Expand your inventory levels and buffer safety stock levels to compensate for longer lead times. Make sure your Min/Max system is reset for larger inventories and longer pipelines.
  4. Lower both your and your customer’s expectations for OTC cycles. Product will take longer in the pipeline. Get used to it and make sure your customer acclimates to the new “normal” as well.

There are three key drivers to establishing better resiliency. “RFC” , “R”edundancies, “F”lexibility and “C”ulture change.

Increase redundancies. Hold extra inventory, increase your supplier base, and lower capacity utilization levels. By being redundant, you are giving up efficiencies. Inventory is cash, unused or not-working cash. This is the tradeoff made when carrying more inventory than your normal model requires.

Added Flexibility. Adopt standardized processes. This lets you switch production across your manufacturing network. Make it easy to substitute your production across the various sites in your network. If they handle the work in a standardized fashion then you can bounce your production and distribution around as conditions dictate, without skipping a beat.

Put key functions in sync with supply chain demands through a centralized organizational approach. Plan to postpone. Give yourself the ability to wait and develop more WIP goods that can be finished in a variety of ways. Align your procurement strategy with your suppliers. Make sure that your supplier relationships are deep and long. Don’t get caught short handed when one of them goes out of business or has a catastrophic event that impedes their ability to supply you.

Cultural change. Have processes that provide for continuous communication across the enterprise, inside and outside the building. Distribute the power for making decisions. If the power is concentrated in a few hands your organization won’t be able to handle disruption well. Those closer to the fire know how to handle it best.

Condition your teams for disruptions, how to handle them, and what the protocols are to fix them.

There are five pillars of supply chain resilience

Vulnerability

Management Culture

Procurement

Operations

Demand & visibility

Vulnerability. Assess your organizations weak links. Where are you most at risk? Shore up as best you can these points of weakness. Make yourself as bulletproof as possible. There are tradeoffs in this process. It is not cheap to build in redundancy and mitigate vulnerable spots in your supply chain. It is better to know and mitigate them on the front end than suffer the consequences on the back end. Almost a “you can pay me now or pay me later” situation.

Management Culture. Management must be fully on board to support the changes necessary to make your supply chain more resilient. They will understand the picture if you provide the correct model of the monetary costs to do nothing vs the upside if you take the right steps…NOW.

Procurement. How you buy, who you source your buys from, and where are extremely important factors in supply chain resiliency. Let’s face it, if you single source in today’s environment, you are in big trouble when that source falls down. You must investigate and understand your alternative supply sources  and put in place a blueprint of how you need to use them.

Operations. There must be a clear level of communication between the operations teams and the procurement teams.  Management must make sure that they are exchanging forecast and plans in a way that produces a clear path forward in dealing with shortage, delays, and cost increases. It is not unusual for Ops and Sourcing teams to have different sets of metrics and drivers that they use. It is extremely important that these teams operate in sync with one another. Otherwise, the results will be very disappointing.

Demand & Visibility. Not enough can be said about making the Demand mechanism as clear as possible throughout the organization.  The more visible the demand signal is, and the more time spent on how to meet it, the better the results will be. Demand signals and forecasts are difficult during normal times of stability. In today’s less stable environment the whole supply chain can get whip-sawed around by the market forces in play today. It is therefore of extreme importance for the organization to put the time in to dial in the organization to demand signal.

Making your supply chain more resilient is extremely important to the overall effectiveness and health of your organization. Spend the time necessary to align your organization on what’s needed to make it as bulletproof as possible. If you do, the reward will be substantial.

Riverside Logistics Consulting does this (supply chain analysis) for a living and would be happy to take a hard look at your individual supply chain and make recommendations on how to shore it up. This process can pay high dividends in a short period of time. If you need more information, contact Jim Durfee at 804-474-7700 extension #4. We’re here to help.

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What Supply Chain Problems should you be planning for in 2023?

Here’s my list of the top 5, the no-fail 5 for Logistics

  1. Rate increases- you can bet that in 2022 rates will continue rising. These (freight rates) however have already shown tapering in May of 2022. Will it continue or is it just a lull in the action? Base rates have reached a level that is just not sustainable in the long term. My advice is to send out RFP’s and RFQ’s in late third quarter or early fourth quarter  to take effect in the first quarter of 2023. Keep a close eye on the drivers for rates, labor cost, equipment cost, fuel costs and borrowing costs. As these stabilize and maybe even start to recede, it will be time to initiate the requests. You should try to avoid the spot market by signing long term contracts that lock in your rates for at least a year. This way you can predictably plan for your logistics cost for the whole year.
  2. Capacity- Trucks have been tight all year. We are starting to see some improvement in the last 30 days. Will it continue? Probably, but do you really want to run your business on a maybe? Capacity will ease in 2023 especially if a recession hits. However, don’t you think that it’s best for you to do something to ensure an adequate supply of trucks or railcars or intermodal containers, to keep the business running? If capacity loosens up, your access to it will improve. But you are still at the mercy of a significant event. A pandemic, a war, a recession. Your best strategy in 2023 should be to partner with someone who can guarantee a steady supply of quality transportation assets. If you are a smaller business, with 100 million dollars or less in revenue, then you should take a hard look at partnering with a third-party logistics company (3PL) to protect your access to capacity.
  3. Service Levels- in addition to higher rates and less trucks, we have seen a serious erosion in service levels over the last 12 months. This is due to several factors. A primary cause in the LTL markets was their inability to attract and maintain labor pools necessary to handle freight at their terminals. On the truckload side, drivers were quitting or retiring in record numbers and that left it hard to find and run trucks. The entire logistics network went out of kilter. This caused severe backups at ports, terminals, warehouses, and manufacturing sites. It can be described as a domino effect. When one piece of the supply chain puzzle defaults, it affects other pieces, which in turn affect others and so forth and so on. If you want or need to improve your service levels, without risking cost inflation, I suggest that you consider partnering with a 3PL who can help find both adequate and reliable transportation for your goods.
  4. Inventories- with all the recent out of stocks (OOS), companies have increased their inventory levels significantly. With inflationary pressures and a possible recession looming, it may make sense for you to anticipate needing a lot less inventory to run your business in 2023. Pay particular attention to the carrying cost of your inventory and the turns associated with it. You need to carefully manage it in 2022 and develop a plan to be able to reduce it in 2023 if a recession hits. Inventory is idle cash. If sales volumes go down, that means more inventory related cash is tied up in inventory and is not helping the business.
  5. Customer expectations- your customers, like you, are weary of the pandemic related supply chain issues. Just like your ability to serve them has degraded, so has their ability to serve their end users. All in all, expectations have come down to earth, hard and fast. Currently, when you explain that a shipment or order won’t be getting to your customer as fast as they would like, its easier now for them to understand. This condition will change, more than likely it will happen faster than you think and require major adjustments to how you go to market. Be prepared to change your service model metrics. By change, in 2023, this will require much more stringent on-time delivery performance, less out of stock situations, and probably lower costs.

Right now, understanding the supply chain in 2023 is a crapshoot. Sitting back and taking a wait and see approach will not help. You must plan for what you think will happen, as well as, at the same time bullet-proofing your logistics network as much as possible. One key facet to this process should be taking a hard look at using a 3PL to enhance your logistics network.

Riverside Logistics is a 3PL with 25+ years of experience in warehousing and logistics. We have both the experience and know-how to help you “bullet-proof” your logistics network. We would love to have an opportunity to discuss this with you. We can be reached at 888-999-0734. One of our Logistics Management Consultants would be happy to help you.

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